Volatility measures the extent of price changes in a financial asset, serving as a key indicator of market risk.
Higher volatility means larger price swings, which can increase short-term profitability but also make the investment riskier, as potential losses grow along with potential gains. Conversely, low volatility indicates smaller price movements, making the asset a lower-risk investment.
Like liquidity, volatility influences the spread, with higher volatility typically leading to increased trading costs due to elevated risk.
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