Crypto glossary
Volatility
Volatility measures how much and how fast an asset's price swings; crypto assets are known for volatility well above that of stocks or major currencies.
Volatility describes the size of price changes over a period. Historical, or realized, volatility is calculated from past price moves, usually as the annualized standard deviation of daily returns. Implied volatility is derived from options prices and reflects how much movement the market expects in the future.
Bitcoin has historically moved several times more than major stock indexes, and smaller tokens swing even more. Traders follow implied volatility indexes for bitcoin and ether, such as Deribit's DVOL, much as stock traders follow the VIX. Periods of unusually low volatility have often been followed by sharp breakouts, and options traders can buy or sell volatility directly.
High volatility creates opportunities but also raises the risk of liquidation for leveraged positions and of panic selling. Sizing positions carefully, using stop-loss orders and avoiding excessive leverage are common ways to manage it. Low volatility is not the same as low risk, since calm periods can end abruptly.
Example
An asset with 60% annualized volatility can be expected, under a simple model, to move roughly 3% on a typical day, compared with around 1% for an index with 16% volatility.
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