What does Volatility mean?

Volatility measures how much and how fast a stock's price swings up and down — high volatility means bigger, faster moves in both directions.

Volatility measures how much a stock's price swings over time. A highly volatile stock might move 5% in a single day; a low-volatility stock might barely move 0.5%. Volatility isn't inherently bad — it just means bigger potential gains and bigger potential losses.

Volatility example

A stock that moves 0.5% on a typical day is low-volatility; one that routinely moves 4% is high-volatility. Over a year, a 40% annual volatility means a swing of about 40% either way is a fairly ordinary outcome.

Common beginner mistake

Confusing volatility with risk of permanent loss. A volatile index fund can recover; a calm-looking stock in a dying business may not.