Investing in the financial market presents a good opportunity to have your funds regularly grow over time, with more returns promised to those who make wiser investment decisions at the right time. As with any investment, there runs a risk of your investment not panning out. With the multitude of various investments possible in today’s modern market, the best way to understand the profitability and possible returns generated in a market over time is to understand the concept of market volatility.
Market Volatility: What is It?
Market volatility is essentially a statistical dispersion of returns over a given time, sometimes assigned to a single asset but also available to measure the volatility of a given market during a specific period. In layman’s terms, it’s essentially a good measure of how often and by how much prices go up and down. When you have a market that has consistently large and frequent volatility, then it is considered a highly volatile market.
When Market Volatility is an Opportunity
Market volatility is a regular phenomenon in any financial market. If a market were not to have any price changes, there would be fewer financial products and flexibility in investment choices, as well as fewer opportunities to enter a competitive market.
Opportunities with higher volatility are essentially a good sign for those looking to get valuable assets and equities at possibly undervalued rates. Prices go up and down for a variety of reasons, but generally stable companies can expect to see prices bounce back after a certain period. It’s important to do your proper research when investing in a particular asset to understand what is driving the current volatility and if it poses itself as an opportunity for future growth.
When Market Volatility is a Threat
The flip side of market volatility comes to those who are looking for generally more secure assets to invest in, what some would call “low-risk” investing. While we mentioned that many investment vehicles carry some form of risk, there are certain investments that hedge their risks to produce low volatility over an extended period of time.
Market Volatility, then, would be a threat to those with not enough exposure to other products in the market as sharp decreases in a singular asset can cause the entire value of the portfolio to dip. Inexperienced investors should tread lightly on highly volatile markets.
Market volatility is a standard feature in any publicly tradeable asset as demand for a specific product can rise and wane at different periods in the year. Always ensure to do your proper research on your investments as well as to diversify your holdings in order to lower your overall risk profile.
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only