🌰 In a nutshell: Volatility is instability in the price of an asset.
👶 Tell a toddler: “Some people like to go canoeing on quiet lakes. Other folks like to go whitewater rafting. It all depends on how much you like volatility.”
💬 In a sentence: “Investors see more volatility ahead as coronavirus hammers markets”- Axios, April 9, 2020
🌎 IRL: Cryptocurrencies (including Bitcoin) are examples of highly volatile assets. They have uncertain futures and have strong reactions to current events.
👊Why volatility matters:
An asset’s volatility will impact how risk-averse individuals approach investment. Need your money to be liquid soon? A highly volatile stock with the possibility of high returns may not be your best bet. But for those looking for long term gains, a volatile asset — purchased at the right time — could prove profitable.
🔀 See also: Cboe Volatility Index, or VIX. This measure of the stock market’s likely volatility is based on the S&P 500. If someone asks you if these are volatile times, the VIX can tell you. And as traders say, “When the VIX is high, it’s time to buy.”