In trading, volatility refers to the degree of variation of a trading price series over time. It essentially measures how much the price of an asset fluctuates. High volatility means the price can change dramatically over a short period, while low volatility suggests more stable price movements.
Example:
Imagine two stocks:
Stock A: Its price moves between $98 and $102 within a day.
Stock B: Its price moves between $50 and $150 within the same day.
Stock B is significantly more volatile than Stock A. Traders often use volatility to gauge risk; a more volatile asset generally carries higher risk but also presents potential for higher returns