How much the price is thrown about:volatility measures the swing and the doubt.
The degree of price variation over time: the size of price movements, not their direction.
High volatility means large and rapid price swings; low volatility means smaller ones, which does not make them more predictable.
In plain words
Volatility is how much and how quickly a price moves. A market whose price swings widely from day to day is said to be volatile; one that changes little is said to be quiet. It measures the size of movement, not its direction.
See it move
Pair B range: the largest here
Why it matters
The more volatile a market, the larger the gain or loss a position of a given size can produce in a given time, and the more likely a nearby stop is reached. Traders therefore often relate position size and stop distance to how much a market usually moves.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
Over three days pair A has daily ranges (high minus low) of 40, 50 and 60 pips, and pair B has ranges of 100, 150 and 200 pips.
- 1Pair A average(40 + 50 + 60) ÷ 3 = 50 pips.
- 2Pair B average(100 + 150 + 200) ÷ 3 = 150 pips.
- 3Ratio150 ÷ 50 = 3.
By this measure pair B is three times as volatile as pair A: on one standard lot an average day spans 1,500 units of its quote currency against 500 for pair A.
A common mistake
Low volatility does not make prices predictable, and it does not last. Quiet periods can end abruptly, often around news.
Check yourself
Learn more
- Academy lessonBollinger BandsHow Bollinger Bands are built from a moving average and standard deviation, what band width says about volatility, and how squeezes are read.
- Academy lessonScheduled news and how markets reactThe economic calendar, the releases that most often move currencies, why the surprise matters more than the number, and the risks at release time.
- AnalysisWhat drives crude oil: supply, demand and the geopolitical premiumOPEC+ quotas and US shale on the supply side, emerging-market growth and the energy transition on the demand side, and a risk premium that never quite goes away.
Educational information, not investment advice or a recommendation to trade.