Price Variance

Price variance is a measure of the dispersion of price changes around the mean, often used as a direct indicator of market volatility. In trading, higher variance indicates less predictable prices, which increases the difficulty of getting good execution on limit orders.

Traders must account for variance when setting their stop-loss levels and calculating their position sizes. It is a central concept in modern portfolio theory and is used by derivatives traders to price options, where variance is a primary determinant of value.

Understanding price variance helps in assessing the true risk of any trading strategy or derivative position.