Implied Volatility

Implied Volatility (IV) is the market's forward-looking estimate of the likely magnitude of price movements for an underlying asset, such as a currency pair, over a specified period, derived from the current market price of its options. In the FX market, IV is a critical input in the Black-Scholes-Merton model and reflects the collective sentiment and expected risk, with higher IV indicating greater anticipated price swings and therefore more expensive options premiums.