trade with the most volatile currency pairs. Forex markets are susceptible to various factors affecting volatility, and many traders are trying to adjust their strategies to take advantage of the most volatile currency pairs.
Currency volatility is often measured by calculating the standard deviation or variance of currency price movements, it gives traders an idea of how much a currency can move relative to its average over a given period. Traders can also measure volatility by looking at the average actual range of a currency pair or by viewing the range as a spot rate.
The higher the volatility of the currency, the higher the risk and vice versa. Volatility and risk are commonly used interchangeable terms, and different currency pairs, on average, have different levels of volatility.
Some traders enjoy the higher potential rewards that come with trading highly volatile currency pairs. This increased potential reward represents a greater risk, so traders Position size When trading highly volatile currency pairs.
Which currency pair is the most volatile?
The major currency pairs with the most volatility are:
Other major currency pairs such as EUR/USD, USD/JPY, GBP/USD, and USD/CHF are generally more liquid and consequently less volatile. This means that emerging market currency pairs such as USD/ZAR, USD/TRY, and USD/MXN can record the highest volatility figures.
Most volatile currency pairs
Major- AUD/JPY, NZD/JPY, AUD/USD, CAD/JPY, GBP/AUD
Emerging markets- USD/ZAR, USD/TRY, USD/MXN
In addition to relatively low liquidity, emerging market currencies tend to be highly volatile, especially due to the inherent risks that underpin emerging market economies. The chart below shows an example of the volatility of emerging market currencies. USD/ZAR (US Dollar / South African Rand) rose almost 25% in a month. Here are a few other examples of these rapidly fluctuating emerging market currency pairs throughout history.
What about the least volatile currency pairs?
The currency pairs with the least volatility tend to be the most liquid major currency pairs. Also, these economies tend to be larger and more developed. This leads to more trading volumes and, in turn, promotes greater price stability. For this, considering the high liquidity EUR/USD, USD/CHF, and EUR/GBP trades, it is not surprising that these are among the rental volatility currency pairs.
In the picture below, the average actual range (ATR) for USD/CHF is between 45 pips and 65 pips, which has a lower average actual range compared to the other pairs. The average real range of a currency is one of several ways to measure the volatility of a currency pair. Bollinger bandwidth is another popular Technical indicators Used to measure volatility.
Correlation between two currencies can also affect volatility. The more positive two currencies correlate with each other, the less volatility can be. Continuing looking at the USD/CHF example, both the US Dollar and the Swiss Franc are considered as follows: Safe currency.
The US dollar and Swiss franc tend to be bullish against their sentiment-related peers when the market experiences a hedging episode, but the two currencies may not deviate significantly from each other. This contributes to the relatively low volatility figure for USD/CHF.
How to trade currency pair volatility
Forex traders must take into account current readings of volatility and potential volatility changes when trading. Market participants should also consider resizing their positions for the volatility of currency pairs. Trading highly volatile currency pairs can reduce your position size.
Awareness of volatility can also help traders determine the appropriate level of stop loss and take profit limit orders. It is also important to understand the key characteristics that differentiate between the least volatile and the most volatile. Traders also need to know how to measure volatility and be aware of events that can make a big difference in volatility.
Difference between trading currency pairs with high volatility and low volatility
- Currencies with high volatility generally move more. Pip For a period of time than a currency with low volatility. This increases your risk when trading highly volatile currency pairs.
- Currencies with high volatility are slide Than currency pairs with lower volatility
- Because volatile currency pairs show greater movement Determining the exact position size You need to take it with you when trading.
There are several ways to measure volatility.
To determine the exact position size, traders must have expectations of how volatile the currency can be. You can measure volatility using a variety of indicators, such as:
Traders can also see Implied volatility A number that reflects the level of expected volatility derived from an option.
5 Key things traders need to know about volatility:
- Big news events like Brexit or Trade war. It can have a huge impact on currency volatility. Data disclosure can also affect volatility. Trader Economic calendar.
- Volatility currency pairs still follow many technical aspects of trading. Support and Resistance Levels, trend lines, and price patterns. Traders can take advantage of volatility in combination with rigorous technical analysis. Risk management principles.
- Stay up to date with the latest forex pairs news, analysis, and fee It can help predict possible changes in volatility. We are a comprehensive Transaction prediction It will help you navigate the market.
- DailyFX hosts a day Webinar Answer questions and help traders prepare for fluctuating market conditions.
- Complement your Forex learning and strategy development with DailyFX. Education center.
If you would like to follow the prices of the pairs listed above, our demo account gives you access to a real-time price feed with full tools, charts, and indicators. Click here to request a free demo with IG Group.