Volatility is the rate of change of a specific financial asset like stock, currency, index, or commodity. For example, a company whose share price is range bound or consolidating is said to have low volatility. On the other hand, a firm whose shares move up and down is said to be highly volatile.
Example: A stock that trades between Rs 200 and Rs 300 would be considered more volatile than another that trades between Rs 250 and Rs 300. For a meaningful comparison, price movement should be measured over the same period, i.e., over a week or two months.
When trading in financial instruments at an exchange, there are two types of price volatility that traders and investors need to understand.