Slot machines give a random outcome on every spin, but not every player is aware that they also have different volatility levels built into them. By looking at how this works, we can get an idea of how this mechanism relates to the stock market and gain some clues on how to use this knowledge in the future.

The Definition of Volatility

We can start by looking at the concept of volatility in slots. This is a measure of the frequency and size of wins that players can expect to receive. The outcome is still random, but these games are designed with different volatility levels to appeal to each type of player. A low-volatility game typically pays out small wins frequently, while a higher-volatility game will generally have bigger prizes like jackpots, but may have longer non-winning streaks too.

In the stock market, we look at the VIX, which is a volatility index. It’s sometimes called the fear gauge, because it shows us whether fear or optimism is currently ruling the S&P 500. In fact, the VIX is considered to have an inverse relationship with the stock market. When stock prices fall, the VIX climbs because investors feel the fear factor kicking in.

So, the truth is that these are different kinds of volatility we’re looking at, and they shouldn’t be confused with each other. However, now that we’ve covered the way that slots work, we can explore whether this helps us to look at different types of stock and consider how their volatility levels matter.

Understanding High Volatility Slots And Their Implications

When we look at high volatility slots, we can find titles like A Night with Cleo, Caesar’s Empire, and Fury of Zeus. The themes in each case are reflected in the symbols and bonus features, but they don’t affect the volatility. To understand how the game pays out, we can look at the paytable. Fury of Zeus has a jackpot and a free spins round with a multiplier, so we can see at a glance how the game uses these factors to create more volatility.

How can this be compared to the stock market? Both occupy the outer edge of the risk-reward curve, where the potential payout has to be weighed up against the probability of achieving success. You might play a lot of spins on a highly volatile slot without a win, in the same way that penny stocks often fail to grow.

There are plenty of penny stocks around, covering every type of industry and location. This look at why penny stocks are so volatile confirms that a lack of liquidity is a big reason, while there may also be a lack of transparency. 

In terms of slots, adding a bonus buy feature is another way of adding extra volatility. This video explains how this mechanism is used in some games so that players can choose whether to pay extra and get entry directly into the bonus round, rather than waiting to trigger it.

The lower volatility in some slots means that, in theory, you can play them for longer with a more modest budget. If we take the example of 8 Golden Dragons or 8 Lucky Charms, we see that these games have a similar range of themes to the high volatility games we looked at earlier. However, the potential win amounts in the paytable are usually lower.

This way of categorizing slots doesn’t have an exact match in the stock market. However, we could use the idea to give us a new way of looking at blue-chip stocks. These are typically less volatile than penny stocks for a variety of reasons. Their larger market capitalization makes it more difficult for the price to move, while their strong reputation ensures that there are almost always buyers waiting to step in if the price drops.

There are no exact definitions of blue-chip stocks for us to stick to. Yet, when we look at major indices like the S&P 500 or the Dow Jones Industrial Average, it’s relatively easy to see the biggest names in the corporate world. As with low volatility slots, these stocks can’t be classed as surefire winners, but they’re more likely to avoid the abrupt rises and falls that are often present in smaller stocks. There are enough blue-chip stocks to suit any stock rotation policy, since they cover many industries and regions.

Understanding the different volatility levels of slots and stocks is a solid starting point for making better decisions. These different options exist because we all have different tastes and risk tolerance levels. Therefore, it’s all about working out what is best for you and then sticking to that approach.