Question

When identify possible risks that could be associated with a volatile market environment.

Answer 1

In a volatile market environment, the share prices of the stock moves violently. We can expect big moves in the stock on either direction. There will not be a clear trend in the stock movement.

This makes the investors and traders fearful of their position and they are risked to make irrational decisions. The volatile market environment is measured by an index called VIX created by the Chicago Board Options's Exchange (CBOE). A high value of VIX indicates a higher volatile market and vice versa.

There may be a risk of trade execution as the load on the broker's terminal will be heavy. During these tiimes we may experience technology breaking out.

Investor who panic may sell their shares at low prices and regret later when the stock prices recover.