Implied Volatility (IV)

Is a factor that says something about the market's expectations of changes in the price of an instrument in the future. Investors can then use implicit volatility to calculate the expected future price change for the specific instrument they intend to invest in. It is often used to price option contracts.

Implicit volatility is a factor that changes all the time. Before making an investment, you can use the relevant factor that is, and calculate how much volatility is expected for the relevant instrument you intend to invest in. IV will therefore give you an indication of how large fluctuations it is likely that the instrument will experience. This can be used for, for example, risk calculation, risk-reward calculation, or where a stop-loss can be made.