Pros and cons of volatility
Pros of volatility
Volatility can provide a range of opportunities for traders, especially because derivative products – such as CFDs – enable them to profit from markets that are falling in price, as well as rising.
It is an especially important area of consideration for day traders, who work with price changes that occur by second and by minute rather than over a longer period of time. If there is no volatility, day traders would be unlikely to make a profit.
Cons of volatility
As a general rule, high volatility comes with greater risk. This is due to its association with periods of market uncertainty.
However, volatility and risk should not be confused for the same concept. Although volatility does come with an increased chance of loss, traders can prepare for this eventuality by matching the volatility of a particular asset to their own risk profile before they open a position. By creating an outline of their risk appetite in their trading plan, traders can navigate these periods of market volatility.