ZuluTrade Blog

Volatility – the Irreplaceable Term in Every Trader’s Vocabulary

Knowledge Crunch | Tuesday, October 6, 2015 4:00 AM GMT

Everywhere we turn, everyone is talking about volatility - in the news we read, in traders' descriptions we reply to, in the financial analysis we read when trying to make sense of those executed trades. Putting aside its popularity in our everyday language, do we really know what it means?

Volatility is commonly defined as: "…the characteristic of changing often and unpredictably."
(Source: Vocabulary.com)                                                                                                                                 

Statistics signify volatility as how a daily price of any financial asset fluctuates relative to its average over a specific time period. This fluctuation is also called a standard deviation. Just a reference if you bump into reading it. Baffled definition that breaks down at the end to how the price changes over time.

Noted! So what?! How does this relate to trading?

It actually does! Volatility is what moves the markets around and every trader’s biggest nightmare. For instance, every time Mario Draghi is about to give a speech, the euro prices begin to rise or fall, which is merely traders stocking up euro positions or selling them. Each direction corresponds to the positive or negative remarks the president of the European Central Bank is expected to have on the current state of the economy.

Summing Up...

Volatility is something that cannot be escaped, not only because daily events make it happen, but also because markets interact within each other interchangeably, e.g. stock and Forex markets, adding up extra fluctuation.  Getting the meaning behind the definitions and the factors that affect volatility, takes us one step closer into finding out how our Forex accounts will perform. As we all know, limited exposure to risk is the key for an efficient account management.

Have a great day!

Disclaimer: This blog content is written for educational purposes and does not contain any investment advice.

Comments are closed

Trading spot currencies involves substantial risk and there is always the potential for loss. Your trading results may vary. Because the risk factor is high in the foreign exchange market trading, only genuine "risk" funds should be used in such trading. If you do not have the extra capital that you can afford to lose, you should not trade in the foreign exchange market. Forex Brokers and ZuluTrade are compensated for their services through the spread between the bid/ask prices or there may be a cost to initiate a trade through the bid/ask spread. Signing up is totally free, and there is NO contract and NO monthly fees, ever.

This blog is for informational purposes only. This blog is not intended for distribution channels and may not be reproduced or distributed without the permission of Zulu Trade ltd or any of its affiliated entities (“ZuluTrade”). All opinions, news, prices or other information contained in this blog are provided as general market commentary and this report does not contain and it is in not to be considered in any circumstance as market analysis, offer or solicitation to buy or sell any financial instruments, personalized or general recommendation for any investment decision or investment strategy by ZuluTrade, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this blog should not be construed as financial or investment advice on any subject matter. The financial instruments referred to herein may not be suitable for all investors and any investments on such financial instruments requires the assessment by each investor and its counsels of the investor’s investment characteristics, including the investment risks which the latter is willing to assume. This blog has been based on information which has been made public, obtained from sources believed to be reliable, but it has not been verified by ZuluTrade. No representation or warranty (expressed or implied) is made as to the accuracy, completeness, correctness, timeliness or fairness of the information or opinions herein, all of which are subject to change without notice. No responsibility of liability whatsoever of howsoever arising is accepted in relation to the contents hereof by ZuluTrade or any of its directors, officers, employees. Further, no representation is being made that any results will be achieved, and past performance is not indicative of future performance.