Volatility is a complex statistical measure commonly used by traders and investors. Those unfamiliar with it will likely attribute some sort of special “standing” to analysts whenever the term is used. However, as shown in a recent comment by Binance exchange founder Changpeng Zhao, most of the time, people are clueless about what volatility means.
This is not the first time that Zhao has made an incorrect assumption on that topic. In May, Zhao said that volatility was “not unique to crypto,” although multiple sources, including Cointelegraph, showed that excluding Tesla, no S&P 500 stock matched Bitcoin’s (BTC) 70% yearly volatility.
So, what is volatility?
Realized (or historical) volatility measures how large daily price fluctuations are, and higher volatility indicates that the price can drastically change over time in either direction.
This indicator might sound counterintuitive, but lower volatility periods represent a more significant risk of explosive moves. That is partially due to realized volatility being a backward-looking indicator. During quieter periods, traders tend to over-leverage, which then causes larger liquidations during sudden price moves.