In volatility trading, traders try to make profits by speculating on changes in the volatility of the securities they trade, instead of their direction. Depending on the strategy, volatility traders make profits when the volatility increases, decreases or stays flat.
Traditionally, volatility trading requires investing in the options market by buying and selling options. For example, a volatility trader can establish an at-the-money straddle (a put and a call option at the same strike price) position to gain exposure to volatility. The strategy doesn't care which direction the market or the underlying security moves. The position becomes profitable only when the implied volatility of the underlying security increases.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
