The VIX

The VIX is published by Cboe. It uses S&P 500 options prices to estimate how much volatility the market expects over the next 30 days.

The fear gauge

The VIX is often called the fear gauge because it tends to rise when US shares fall sharply. Investors pay more for protection, options prices go up and so does the VIX. In calm markets, it tends to drift lower.

You cannot buy the number

The VIX itself is a calculation. You cannot buy it directly. Products that give exposure to it, such as futures, options and some CFDs, are based on expected future levels.

That means a product can behave very differently from the VIX number you see on a chart. It can lose value over time, even when the VIX barely moves. Always read how a product is built before you practise on it.

Using it as information

Even if you never trade it, the VIX can give useful context. A high reading suggests that large swings are expected, so you may decide to reduce your size or stay out.

It does not reliably tell you where the market is going next. A high VIX can go higher still.

Key point

The VIX measures expectations, and it is not a timing signal. Trading products linked to it is complex, and it is not a good place for a beginner to start.