What are volatile stocks and how can you invest in them?

What's on this page?

1. What are volatile stocks?
2. How to invest in volatile stocks with us
3. How is volatility measured?
4. Five volatile stocks to watch
5. Pros and cons of volatile stocks
6. Volatile stocks summed up

What are volatile stocks?

Volatile stocks are shares in companies which experience sharp price movements over short periods of time. These swings may be caused by earnings announcements, economic indicators, company-specific developments, broader market trends, or even online commentary.

Volatility is perhaps the most emotional word in the investing dictionary. For investors and traders with the required risk tolerance and psychological strength, volatile stocks can generate significant returns. Of course, the same price swings that bring large rewards also carry the potential to deliver substantial losses.

In financial terms, volatility simply refers to the degree of variation of a share price over time. Stocks that often fluctuate by between 5% and 10%, or more, in a single day’s trading are generally considered to be volatile — especially when their movement is not tied to fundamentals. For example, a company rising by 20% in one day as a one-off because of an underlying improvement to the business case is not going to be classified as volatile. It requires consistent large movement.

Of course, some stocks are naturally volatile due to the nature of their business, their exposure to speculation, or their lack of profitability. Others become volatile in response to external events like a geopolitical crisis, but the key point is that volatility is often unavoidable for specific businesses.

How to invest in volatile stocks with us

1. Learn more about the volatile stocks
2. Download the IG Invest app or open a share dealing account online
3. Search for your desired stock on our app or web platform
4. Choose how many shares you’d like to buy
5. Place your deal and monitor your investment

Investors look to grow their capital through share price returns and dividends - if paid.

But the value of investments can fall as well as rise, past performance is no indicator of future returns, and you could get back less than your original investment.

For investors seeking exposure to volatility as a general them, a popular choice is the ProShares VIX Short-Term Futures ETF, which offers exposure to volatility within the S&P 500, as measured by the prices of VIX futures contracts. It has a relatively high expense ratio of 0.95%.

How is volatility measured?

To measure how volatile a stock is, investors and analysts rely on several key metrics. Among them:

• Beta —compares a stock’s movement to the broader market. A beta of 1 means the stock tends to move with the market, while a beta greater than 1 indicates greater volatility and a beta of less than 1 implies less movement relative to the market. For example, a stock with a beta of 1.6 is expected to move 60% more than the market on average
• Average True Range — calculation of the average range between a stock’s daily highs and lows over a specific period. The higher the ATR, the more a stock’s price varies from day to day
• Standard Deviation — reflects how spread out a stock’s returns are from the average return. A stock with a high standard deviation experiences wider price swings
• Implied Volatility —indicates the market’s expectation for how much a stock will move in the future, based on current option pricing. High implied volatility suggests that investors expect significant price changes

Understanding the psychology behind trading volatile stocks is perhaps more important than the pure numbers. Trading on volatility often leads to poor decision-making if an investor becomes emotionally invested in the outcome, because greed can drive traders to chase upward gains while fear can lead to panic-selling during a temporary dip.

But there is a clear appeal — in particular, for day traders and swing traders who thrive on volatility because it creates opportunities to buy low and sell high within short time frames, generating sizable profits in a short period of time. Beyond this, volatile stocks are usually more likely to reflect market inefficiencies, allowing investors to exploit their temporary mis-pricings.

Of course, volatility cuts both ways. If you can generate profits more quickly than with more stable stocks, then it’s also true that it’s easier to suffer losses. And unlike stable companies which reward investors with long-term compounded returns, volatile stocks require active management — and it can be hard to know when to pick entry and exit points.

It’s worth noting that volatility is often a temporary phenomenon. The largest technology companies in the world were all initially extremely volatile; for example, Amazon and Nvidia both experienced huge daily swings in the early 2000s and then settled down into blue chip status post the dot-com boom. These stocks have once again become highly volatile as investors contemplate the longevity of the artificial intelligence boom and President Trump’s whipsaw politics.

It's also important to understand that retail investors are at a disadvantage when trading volatile stocks compared to institutions like hedge funds, which have access to advanced trading algorithms, real-time analytics and significant capital — which mean they can capitalise on volatility much faster. These firms might also use high-frequency trading or options arbitrage to profit from short-term price discrepancies. Often institutions have already pounced on what might look like an opportunity.

Five volatile stocks to watch

While there are many volatile stocks, these five are arguably some of the more popular from a retail perspective.

GameStop

GameStop is arguably the poster child for stock market volatility. Originally thrust into the spotlight in 2021 during the retail trading frenzy fuelled by Reddit’s WallStreetBets community, GameStop continues to experience intense daily volume and price movements driven by speculation, short interest, and online momentum. Despite efforts to pivot to e-commerce and cryptocurrency investing, GameStop’s fundamentals arguably take a back seat to market psychology.

Tesla

Tesla is also a key volatile stock. While Tesla remains the most valuable car manufacturer in the world, it is also arguably overvalued compared to its peers on a revenue and delivery basis — while its charismatic, polarising and constant social media present CEO Elon Musk continues to ensure that no quarter is safe from instability. Despite its large market cap, Tesla often behaves like a high-growth startup in terms of price swings.

Trump Media & Technology Group

Trump Media & Technology Group entered the market with explosive volatility in 2024. The company behind Truth Social remains subject to extreme swings, often driven by political events, media coverage and retail investor speculation. The combination of mixed public opinion and association with the US President has created a textbook example of a speculative, high-volatility shares.

C3.ai

C3.ai is one of many companies riding the wave of artificial intelligence hype. Over the past few years, C3.ai has experienced extreme valuation swings as investors alternate between excitement over AI’s potential and skepticism over the company’s actual performance and profitability. Earnings frequently result in double-digit daily changes in share price, and the stock is more widely highly sensitive to broader tech sentiment.

Carvana

Carvana is another company with sharp, almost unpredictable stock movements. After nearly collapsing under debt in 2022, the online used-car retailer made an aggressive comeback. Its stock surged on restructuring news and short squeezes, only to crash again on weak financial performance amid recessionary fears. Carvana’s high short interest and speculative bets have made it one of the market’s most dramatic movers.

Pros and cons of volatile stocks

As with all investing strategies, volatile stocks have their own advantages and drawbacks.

Pros of volatile stocks

• Potential rewards — volatile stocks offer the chance of high returns in short periods which can be attractive to investors with a suitable risk appetite
• Trading — volatility is attractive for investors taking part in active trading strategies
• Inefficiencies — traders can capitalise on opportunities volatility brings, especially when price inefficiencies arise
• Bull markets — traders in volatile stocks can outperform in speculative bull markets

Cons of volatile stocks

• High risk — there is inarguably an elevated risk of loss, which can sometimes be severe
• Active management — trading volatile stocks requires close monitoring and fast decision-making which is unlikely to work for everyone
• Emotions — volatility can induce emotional trading and poor discipline

Volatile stocks summed up

• Volatile stocks experience sharp, frequent price swings driven by factors including earnings, market trends, speculation or external events, and require both psychological resilience and active management
• Measuring volatility involves key metrics like Beta, Average True Range, Standard Deviation and Implied Volatility, which help investors assess how much a stock’s price might fluctuate
• Volatile stocks offer the potential for high short-term gains but also come with a heightened risk of losses, requiring quick decision-making and tolerance for uncertainty.
• Popular volatile stocks include GameStop, Tesla, Trump Media, C3.ai, and Carvana