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Volatility indicates, how much an investment fluctuates and thus also how risky it is.
However, what exactly is behind the term volatility and how do you How to make volatility work for youYou can find out more in this article.
Furthermore, in just a few minutes you will see how you can use this knowledge to safer and more profitable investment can.
So let's start straight away!
Volatility is one measure of this, how much the price of an asset fluctuates over time. It does not indicate the direction of the price movement, but rather the Extent of price fluctuations.
A security with higher volatility indicates major price fluctuations and is considered riskier than a security with lower volatility.
So, when you read the word volatility in the financial world, for you, you can compare it to the word Fluctuation Translate.
It is important because it has a significant Influence on the performance of assets can have. A security with higher volatility can quickly lead you to big gains or losses. Unless you are long-term oriented. But more on that later.
Volatility is caused by a number of factors, including Business news, Winning announcements and about political events. All this can lead to investors buying or selling an asset. This in turn leads to Price fluctuations (volatility).
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The volatility index (VIX) is a Index for market risk. It is calculated using option prices and is often referred to as the "fear index" or "fear gauge". The VIX shows the expected volatility of the stock market in the next 30 days an.
A High VIX means that the Fear in the market great and that investors have a high volatility expect. This can lead to large fluctuations in the stock market.
A Low VIX means that there is less uncertainty in the market and investors expect less volatility in prices. In short, there are Hardly any movement on the market.
Despite the high risks, volatility - used correctly - can also bring advantages:
Attention: This requires a great knowledge of the Options trading necessary. Here a complementary contribution for professionals.
Volatility can be a major risk. A Sudden price movements can lead to large lossesespecially if you are not prepared for it. Volatile markets are difficult to predict and difficult to trade. Especially if you invest in the short term.
As Long-term Investor is Volatility only a secondary factorThis is something you should bear in mind when investing. Finally, you invest capital over a longer period of time, which reduces the risk of large price fluctuations to a minimum.
Especially for individual shares: Always make sure that your investment is backed by a fundamentally strong thesis to protect your capital as much as possible and make the best investment possible!
"Intelligent people learn from the mistakes of others".
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Volatility and risk are often used synonymously, but they are not the same thing. The Volatility of a security, how much the course changes. The Risk is the probability that the Value of an investment decreases.
The relationship between volatility and risk is called the Risk-return ratio denotes. This key figure indicates, how much profit you can make for each unit of risk. A higher risk-return ratio means that you get more return for each unit of risk.
The risk-return ratio is not an important factor for most investors. Often the ratio only emerges for professional traders on.
It depends. Volatility can be a good thing or a bad thing, depending on the investment objective.
If you are a long-term investor, you don't need to worry about volatility. It is only a Problem if you want to sell your investment in the near future.
A high Volatility But can also in your favour impact. You can (in theory) sell an asset quickly at a high price and buy it again cheaply in a short time.
However, historically and currently there is not a single investor who can predict large price fluctuations by mathematical or other formulas. Therefore Over 95 % of all short-term traders underperform the market..
The best investment strategy against volatility is a long-term investment horizon. About the DCA (Dollar Cost Averaging) effect you can reduce volatility to a minimum.
Let's say you want to 10 shares of a 100 franc share buy. You can either Buy all 10 shares at once or your investment in two instalments of CHF 50 divide.
If the share price falls to CHF 90 after your first purchase, you would have lost CHF 10. But if the share price rises to CHF 95 after your second purchase, your total loss is only CHF 5.
You therefore bought 5 shares at CHF 100 and 5 shares at CHF 90 and thereby increased your Loss reduced.
In practice, you set up the DCA effect with a Savings plan um.
You can use the DCA effect to compensate for large price fluctuations. Furthermore, this form of investment is suitable for the targeted expansion of positions in the portfolio. Even if investments are in a loss.
This will allow you to Reduce average price and thus move more quickly back into positive territory. At the same time you increase the number of shares or other assets and can make even more profits in the long term.
The DCA effect is a simple but effective method of Reduce the risk of volatility. By investing in small instalments over a long period of time, you minimise the impact of price fluctuations.
"Intelligent people learn from the mistakes of others".
We have compiled our top selection for you from all our tests and experience reports:
Volatility stands for fluctuation and gives you, how risky an investment is. You should not be put off by it, because there are helpful ways to be able to ignore volatility.
If you invest for the long term and even via a savings plan, volatility becomes less and less relevant for you.
Do you have any questions about the topic? Feel free to leave a comment!