Volatility
Trading opportunities exist when prices fluctuate. If you buy a share for $2
and it stays there, there is no opportunity to make a profit. The magnitude of
level of this fluctuation and its frequency is referred to as volatility. As a
trader, it is volatility that you profit from. Large volume transactions and
high liquidity combined with fewer trading instruments generate greater
intra-day volatility in the currency market that can be exploited by
day-traders. The high volatility of the currency market indicates that a trader
can potentially earn 5 times more money from currency trading than trading the
most liquid shares.
Volatility is a measure of maximum return that a trader can generate with
perfect foresight. Volatility for the most liquid stocks are between 60 to 100.
Volatility for currency trading is 500. (Source: Oanda.) In this respect,
currencies make a better trading vehicle for day-traders than the equity
markets.
