Volatility can be found everywhere. It’s not always bad to
have it around, and just like with everything else, too much volatility is
when it can be bad for your investment. Investing in the stock market is no
exception to this rule.
Let’s discuss the two factors that make up our topic
today, Stock Market and Volatility.
What is Stock Market?
The stock market is the collection of markets and exchanges
where you can issue and trade equities, bonds and other sorts of securities. These
transactions can be done through either formal exchanges or over-the-counter
markets.
This market is one of the most vital components that make up
a free-market economy. It provides companies the access to capital in exchange
for investors being given a slice of ownership.
What is Volatility?
Volatility is the term used to describe the amount of uncertainty
or risk
about the changes in size of a security’s value. You can measure a security’s
volatility by using the standard deviation. Or you can use the variance between
returns from the same security or market index.
Generally speaking, if your security’s volatility is higher,
that means the more exposed you are to risks since the price of the security
can suddenly change drastically in a short period of time. A lower volatility, means that the value of the security does not fluctuate too
much and instead changes in value gradually over a certain period of time.
Stock Market Volatility
Stock market volatility is the combination of the
two subjects above. It can be seen when the stock market fluctuates, going up
and down constantly.
When a stock market’s volatility increases, it’s usually
signals that a market top or market bottom is at hand. This is mostly due to a
great deal of uncertainty.
The bullish
traders will bid up prices during a good news day on the market, while bearish traders
and short-sellers will push prices down when there’s bad news.
During times when the stock market has extremely high
volatility, its unpredictability usually means that the stock has become a more
risky investment. Investors will then demand for a higher return due to the
added uncertainty.
Experience for
yourself how volatility works while knowing which stocks will be best for
you to invest in. FSMSmart is here to
help you navigate the different financial markets. Don’t let another
opportunity pass you by. Registerfor an account today!
