30 years: Financial markets trader

In this video, Abdulla provides an overview of volatility - a term that is associated with the magnitude of movements in price of an asset over time.

In this video, Abdulla provides an overview of volatility - a term that is associated with the magnitude of movements in price of an asset over time.

Overview

Volatility is an instrumental figure in financial markets. Its statistical definition and the four kinds of volatility are defined.

Key learning objectives:

Understand volatility

Define the four types of volatility

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Summary#### What is volatility?

#### What are the four types of volatility?

We associate volatility with the magnitude of movements in the price, or percentage changes, of an asset over time. Assets with a high volatility have the potential to move a lot and low volatility, not so much.

The market convention is to define volatility as one standard deviation of annual returns measured as a percentage. For example, a fifteen percent volatility in very simplistic terms means about sixty eight percent of the time, that’s the one standard deviation bit, the return should be between plus and minus fifteen percent from its current level in a year.

There are a number of types of volatility you might have come across:

- Historic volatility: the standard deviation of past returns
- Future volatility: we could always assume it will be the same as historic. But we’ve all heard the disclaimer, past performance is not necessarily a guide to future performance
- Realised volatility: the difference between expected and realised volatility
- Implied volatility: the market’s perception of future volatility and is obtained from the options markets. In fact when we refer to volatility, this is the version that we mostly refer to

This video is now available for free. It is also part of a premium, accredited video course. Sign up for a 14-day free trial to watch more.

Expert### Abdulla Javeri

Abdulla’s career in the financial markets started in 1990 when he entered the trading floor of the London International Financial Futures Exchange, LIFFE, and qualified as a pit trader in equity and equity index options. In 1996, Abdulla became a trainer for regulatory qualifications and then for non-exam courses, primarily covering all major financial products.

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