Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 64.29% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

64.29% of retail CFD accounts lose money.

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 64.29% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

The Most Volatile Currency Pairs: A Guide to Navigating the Forex Market – JustMarkets

The Forex market is the world’s biggest trading market, where currencies are exchanged. It’s huge and changes a lot, with over $5 trillion traded every day.

It can be tricky because some currency pairs change more than others. When you trade in Forex, how much currencies change in value matters a lot. This change is called volatility.

If a currency pair is very volatile, its value can go up or down a lot in a short time. Some traders like less change for a steadier experience, while others look for more change for the chance to make more money.

Staying updated on live Forex quotes helps you spot any shifts in the currency pairs you’re interested in.

Understanding Currency Pair Volatility

Defining Volatility in Forex

In Forex, volatility means how much a currency pair’s price changes over time. It shows how risky it is to trade that pair. High volatility means the price can change quickly, while low volatility means the price stays more steady.

Factors Influencing Volatility

To understand why currency values change, we look at a few important things:

  • Economic Signals: News like how well a country’s economy is doing, inflation rates and job numbers affect money value. Good news increases its value, while bad news can bring it down.
  • Geopolitical Events: Wars, political problems, or natural disasters can suddenly change how much a currency is worth. These events make currencies move a lot.
  • Central Banks’ Choices: When banks in charge of money make decisions like changing interest rates or how they handle money, it can change the value of a currency. These changes affect investors’ and traders’ demand for the currency.

For new traders, paying attention to these things helps understand the risks of volatility trading on specific currencies. Knowing what makes currencies change helps make smarter decisions and handle risks better in the market.

Most Volatile Forex Pairs

Navigating the Forex market can be challenging, especially regarding volatile currency pairs. However, traders can leverage Forex volatility to their advantage by identifying key pairs that tend to move the most. Here are some of the most volatile currency pairs to keep an eye on:

Emerging vs. Major Currencies

Emerging market currencies are often more volatile than major currencies due to their greater political and economic risk exposure. For instance, compare currency pairs. USD/ZAR, USD/TRY, and USD/MXN are known to experience high volatility readings. On the other hand, major currency pairs such as EUR/USD, GBP/USD, and USD/JPY tend to be less volatile.

Historical Volatility Trends

Historical volatility trends can provide useful insights into how a currency pair is likely to perform in the future. For example, AUD/JPY is consistently one of the highest volatility options due to the Australian dollar’s commodity currency status and the Japanese yen’s safe-haven currency status.

By keeping an eye on these key volatile currency pairs, traders can better navigate the Forex market and potentially capitalize on market movements. However, it is essential to note that volatility can also increase risk, so traders should always use proper risk management techniques and strategies.

Which are the Least Volatile Currency Pairs?

The least volatile currency pairs are often the major ones, like EUR/USD, USD/CHF, and EUR/GBP. These pairs involve currencies from bigger and more developed economies, attracting a lot of trading activity. This high trading volume helps keep their prices more stable than other currencies.

For instance, USD/CHF usually has a lower average true range (ATR) between 45 and 65 pips, showing it’s less volatile than other pairs. ATR is a way to measure how much a currency’s value changes. Another indicator, Bollinger Bandwidth, is also used to check how volatile a currency pair is.

Strategies for Trading Volatile Currency Pairs

Understanding how currency pairs move involves considering various factors impacting their volatility.

Trading volatile currency pairs can be profitable but carries risks. Traders must create a robust trading plan and employ risk management strategies to navigate effectively. Here are some helpful approaches for traders dealing with volatile currency pairs:

Risk Management Strategies

Managing risk is crucial in volatile currency trading. Traders should understand their risk tolerance and use effective risk management techniques to minimize potential losses. These techniques include:

  • Setting stop-loss orders to limit losses;
  • Using trailing stops to secure profits;
  • Scaling in and out of positions to manage risk and increase gains;
  • Diversifying the portfolio to reduce exposure to a single currency pair.

Technical Analysis Tools

Technical analysis is a popular approach to trading volatile currency pairs. Traders use technical indicators and chart patterns to identify trends, momentum, and support and resistance levels. Some popular technical analysis tools that traders use include:

  • Moving averages
  • Bollinger Bands
  • Relative Strength Index (RSI)
  • Fibonacci retracements

Fundamental Analysis in Volatile Markets

Fundamental analysis is another approach to trading volatile currency pairs. Traders use economic data, news events, and central bank policies to make trading decisions. Some of the key economic indicators that traders keep an eye on include:

  • Gross Domestic Product (GDP)
  • Consumer Price Index (CPI)
  • Interest rates
  • Employment data

Pay attention to world events and news—they can shake up currency prices. When traders study technical details and the bigger picture of an economy, they get a clearer view of how the market works. This helps them make smarter choices when trading.

Trading with unpredictable currency pairs needs a good plan, ways to handle risks, and knowing the market well.

FAQ Section
  • A: The best Forex pair to trade now depends on the trader’s individual trading strategy, risk tolerance, and market analysis. Highly liquid currency pairs have low spreads and are less volatile, so they may be suitable for beginners. Experienced traders may prefer more volatile currency pairs with higher spreads, such as exotic currency pairs.
  • A: The amount paid by a Forex pair depends on the size of the position, the exchange rate, and the currency in which the account is denominated. No Forex pair pays more than others inherently. However, some Forex pairs, such as exotic currency pairs, may offer higher returns due to their volatility.
  • A: The most traded Forex pair is the EUR/USD. It accounts for around 24% of all Forex trades globally. Other highly traded currency pairs include USD/JPY, GBP/USD, and USD/CHF.
  • A: The Forex pairs that move the most in a day are typically the more volatile pairs, such as exotic currency pairs. However, the volatility of a currency pair can change depending on market conditions, economic indicators, and geopolitical events.
  • A: There is no specific day that is the most volatile in Forex. However, market volatility can increase during major economic events, such as central bank announcements, non-farm payroll releases, and geopolitical events.
  • A: The most difficult Forex pairs to trade are typically the more exotic currency pairs, such as USD/TRY and USD/ZAR. These currency pairs are less liquid and have wider spreads, making them more challenging to trade.

by JustMarkets, 17.04.2024


Disclaimer: This is not investment advice and/or investment research. The content of this material is intended for educational/informational purposes only and does not contain nor should be considered as containing investment advice/research and/or recommendations. No opinion given in the material constitutes a recommendation by JustMarkets Ltd or the author that any particular investment decision is suitable for any specific person.

Although the information sources of this material are believed to be reliable, JustMarkets Ltd makes no guarantee as to its accuracy or completeness. Neither JustMarkets Ltd or the author of this material shall be responsible for any loss that you may incur, either directly or indirectly.