What exactly is... volatility?

Volatility describes the range of a price – that is, how much a market, security, or commodity fluctuates over a given period of time. Simply put: the more volatile a market, the more violently and rapidly prices change.

In practice, volatility is a measure of risk. When an asset fluctuates sharply, traders can make large profits, but can also incur large losses just as quickly. Markets like the DAX or gold, for example, exhibit phases of low volatility (calm trading) followed by phases of high volatility (e.g., after political events or economic data).

Professional traders pay particular attention to volatility because it influences decisions regarding position sizing, risk management, and strategy deployment. A high-volatility market often requires a different approach than a calm market.

In short: Volatility is the pulse of the market – it shows how nervous or calm trading is at the moment.

Tip from trading pro Marcus Klebe: Measure volatility with the ATR (Average True Range) indicator and adapt your thoughts and analyses to the respective fluctuations of the market!

The image shows the .US30C on a daily chart from JFD Brokers. Below is the ATR with the extreme 1725 points of average fluctuation in the Dow Jones in the wake of Donald Trump's tariff disputes with the rest of the world in April 2025.

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