Asset Volatility

What Is Volatility

Volatility is a statistical measure that reflects how much an asset’s price changes over a certain period of time.

Extremely high volatility is usually caused by news, listings, pumps, and dumps.

Why Volatility Is Important for Arbitrage

For investing, volatility represents risk. For arbitrage, volatility represents opportunity. Arbitrage exists due to market inefficiencies. When the market is calm, market-making algorithms manage to align prices across all exchanges, and spreads decrease. However, during periods of high volatility, prices can diverge significantly, which creates opportunities for arbitrage traders to enter the market.

Risks of High Volatility

Despite the fact that volatility is the foundation for the formation of spreads, it can also carry risks, such as an increased probability of slippage, abnormal price deviations (the price may rise or fall too sharply), network delays, and other factors.