What it is
Volatility refers to the degree of variation of a trading price series over time. It is a statistical measure of the dispersion of returns for a given security or market index. Higher volatility means an asset's price can change dramatically over a short period, in either direction. Lower volatility indicates more stable price movements. It is often measured by standard deviation.
Volatility is a key factor in options pricing, risk management, and portfolio construction. High volatility can present opportunities for quick gains but also carries greater risk of significant losses. Market events, economic data releases, and geopolitical news often trigger increased volatility. Indices like the VIX track expected market volatility, providing insights into investor sentiment and potential market swings.
Why it matters
Volatility helps you understand an investment's risk and potential for price swings. Manage it to align with your risk tolerance.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice