Hack the Jargon: Volatility

• Volatility is used to measure risk
• Risk isn’t can be a good or bad thing
• Uncertainly is always part of trading

Volatility is a measure of risk

But when it comes to trading markets, risk isn’t always a bad thing.

When an asset has higher volatility compared to others, this suggests more risk, but this can also provide an opportunity for an increased return. But always remember, returns aren’t always increasing asset prices. Your return can be an increase or a decrease in value depending if you have bought or sold the asset. An asset with lower volatility generally involves less risk than an asset with higher volatility. Volatile assets are usually characterised as ones that experience large price movements in a short period of time.

Volatile assets are ones that experience large price swings.

Volatility can be compared to waves on the ocean. Some journeys are smooth sailing, calm conditions, light breeze, sun shining… Other times you might be required to navigate waters that are choppy and unpredictable. You might think it is worth the risk in more turbulent waters if you have a more ambitious destination in mind.

Volatility is always a part of trading

No one can predict the market and if they say they can it’s best to run the other way. However, we can investigate the history of an asset’s performance in order to gauge its volatility over time.

There are several ways that investors can measure volatility. Risk and change can be scary, particularly when your money is concerned.

Keep calm, keep trading

Keep reading Zentrader articles to help you stay in the know and don’t let emotions guide your decisions. By continuing to trade regularly, even when asset prices go down, you have the potential for more gains over time, although you could also risk more losses, particularly in the short run.

Zentrader lets you start trading for as little as $5. You can trade single stocks, currencies and commodities on the Zentrader platform, which can help you never miss an opportunity.