The Volatility Index (VIX), also known as the Horror Index, is one of the criteria that investors use to measure market fear, stress and risks.
How was the volatility index created?
The Volatility Index was created by Chicago Board Options Exchange (CBOE) to measure the volatility of the US stock market in 1993. It is a real -time indicator that measures the price fluctuations foreseen in the SP500 index options. It is always derived from the prices of the SP500 index options, which are the short -term expiration date, and form volatility projections for the next 30 days. The VIX is also known as a measure of vertical volatility as it predicts price changes instead of statistical analysis of historical trends. Estimates are based on a betting format in which experienced investors bet on the expected future performance of foreign securities in the SP500.
Why is the VIX index important?
VIX helps investors analyze different markets, diversify and protect their portfolios and speculate on price movements. You can connect various instruments such as Forex, Stock CFDs, Gold and Commodities with VIX. This means that any indicator that a market will probably collapse will strengthen the appearance of the investor in other markets when trading with VIX. However, if a certain market explodes, it may warn investors about other potentially falling markets.
Taking positions in VIX allows you to balance assets in your portfolio by maintaining market exposure. For example, you have a long position in an entity related to the SP500. Although there are some long -term expectations, you choose to reduce your exposure to short -term volatility. Therefore, you will open a position in VIX. Processing with VIX allows you to balance your assets by meeting possible damages to meet short -term profits.
What can investors learn with VIX?
- When there is an increase in VIX, this means that investors in the S&P 500 option market expect market volatility will increase.
- The higher the VIX index, the higher the fear and the more the market is considered as a purchase signal according to market opponents.
- Of course, the opposite is true. The lower the VIX, the lower the fear, the more comfortable the market shows a more comfortable market.
What does fear and greed mean in crypto?
In case fear is dominant in a particular market, investors experience fear of losing their capital. Fear in a market is usually associated with a bear market and the fall of prices. It may be caused by general economic factors such as inflation or stagnation. It is not surprising that the crypto fear and greed Index, with the fear that prices will fall even more, will be in extreme fear during the fall.
When greed is dominant, investors fill their baskets and are excited about future potential gains. The greed in a market is usually associated with the rise of bull market and prices. Interestingly, greedy is often accompanied by a kind of fear – Fomo (fear of kidnapping something). This emotion directs investors to purchase.
How to Read VIX:
Understanding VIX levels can offer valuable information:
- 0-15:Low volatility shows market stability.
- 15-25:The signal of moderate fluctuations, but there is no excessive market fluctuations.
- Over 25:It points to higher volatility with increasing uncertainty in the market.
- 30 and above:It shows significant volatility and probably signals the major changes in the market.
How to process with VIX?
Many securities are based on CBOE VIX pricing, which provides the advantage of low and high volatility to investors. The easiest way to invest in VIX is Stock Exchange Investment Funds (ETFs) based on VIX term transactions. Investors can buy and sell VIX ETFs like normal stocks. Most investors invest in products with a 30 -day maturity, as VIX ETFs are risky. This means that most investors do not hold positions in the long run. You can buy and sell VIX as follows:
- Open an account: If you don’t trust yourself enough to trade VIX in a live market, you can first consider opening a demo account.
- Learn how VIX works: Learning how VIX works and reviewing past VIX graphics will help you understand the changing prices over the years.
- Decide whether you want to go long or short: If you believe that VIX will rise, it may be a good move to go long. If VIX is expected to fall, investors usually take short positions.
