Volatility

Volatility is a measure of how much and how rapidly an asset’s price or returns vary over a particular period. Larger and more frequent price deviations generally correspond to higher observed volatility.

Crypto markets can experience substantial volatility because they trade continuously and are affected by changing liquidity, news, expectations, and other market factors.

Historical and implied volatility

Historical volatility is calculated from observed past price movements. Implied volatility is primarily used in options markets and reflects expectations embedded in option prices.

Volatility and risk

High volatility means that prices can travel significant distances quickly. For a trader, this creates both greater potential for changes in position value and greater risk of adverse movement.

When leverage is used, high volatility becomes particularly important because a sharp price move can quickly bring a position closer to liquidation.