Volatility is a measure of the extent and rate of price changes in the stock market. The higher the volatility in the market or in certain stocks, the riskier the trades. On the other hand, increased risk also implies the possibility of higher returns.
Low volatility is when the stock price fluctuates for a long time at approximately the same level. It is in a narrow range, or very slowly “crawls” in one direction. Trading volumes may be below average. Investors don’t take an active part, and the security seems to be of no use to anyone. Its price does not rise or fall, but just “moves” little by little following the stock indices.
On the other hand, there are securities for which high volatility is normal. A striking example of a highly volatile instrument is shares of Tesla, Inc. (NASDAQ: TSLA). Their performance is similar to a roller coaster: Tesla's share price sometimes changes by 10-15% in just one trading session. On average, they rise or fall by 6.5% every week.
Learn more about volatility in our blog