This is because some factors like political, economic, and social events cause volatility in the prices. Traders should keep up with financial news to make profits and avoid losses. So, to begin, we will first help you understand the definition of volatility and currency pairs, then look at the most volatile currency pairs. After reading this guide, you will find it easy to choose the best currency pairs to trade.
The trading balance directly affects the NZD, causing positive inflation rates. The Japanese economy is characterized as having a slow and steady growth rate, in addition to a low-interest rate of around 2%. The Aussie economy lacks stability, https://bigbostrade.com/ it fluctuates with the prices of commodities, deals with agricultural lands problems, and relies heavily on its trading partners. Suppose you want to acquire shares from a (fictitious) French food company called Food from France.
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Major economic releases, central bank announcements, geopolitical developments, and unexpected news can lead to sudden shifts in currency pair prices. Additionally, trading activity tends to be higher during overlapping trading sessions, such as when the London and New York sessions coincide. Trading volatile currencies mean that prices can fluctuate heavily in a short period of time, and the market trend can change its direction a few times in one day. Therefore, the stop-loss option in Forex helps traders to avoid excessive losses. Volatility refers to the market price stability or instability during a specific period of time.
- The most volatile currency pairs can sometimes be hard to determine since volatility can impact different currencies at all different times.
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- Changes in the price of this currency pair depend on the economic condition of the UK and EU economies, their trade relationships, and inflation rates.
- High volatility can lead to large losses if the market moves against a trader’s position.
It has large commodity reserves because its price links to most of Australia’s exports like metals and minerals. You may have observed that prices move non-linearly on the chart if you’ve ever traded in the Forex market or at the very least watched price swings from the sidelines. The currency price will sometimes remain static or move in a relatively limited range.
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They are characterized by low trading volume and are extremely risky to trade due to their high volatility. Since there are fewer market participants buying and selling them, it is much easier for buyers and sellers to push quotes up and down. That being said, there are a few things to bear in mind before opening a position on a volatile currency pair. However, with a well-thought-out trading plan and risk management strategy in place, there is little to fear from volatile currency pairs. However, while increased volatility may offer more scope to realize a profit, it can also increase a trader’s exposure to risk. The least volatile currency pairs tend to be the major currency pairs which are also the most liquid.
Thus, the value of the Australian dollar is tied to the commodities, foods, and metals that the country exports. This calculation tells the volatility price or the range at which the market price is changing. Note that you need to determine the timeline to calculate the volatility.
However, the Japanese yen enjoys a reputation as a haven currency because investors often purchase it in times of uncertainty. The UK economy is projected to grow more than 6% in 2022, which is 3% more than the estimated economic growth rate of Australia for this same period. After the GBP deteriorated in light of the Brexit referendum, the Australian economy was going through reforms that introduced new monetary and fiscal policies to the country. Given this significant risk of foreign bonds, investors might want to steer clear of them. However, foreign stocks can offer a different opportunity since stocks can grow faster and offer more upside. When a country’s currency is more robust (relative to the foreign bond’s currency), the value of the bond and its future interest payments can be significantly reduced.
However, any abrupt changes in SNB policy can trigger significant price movements in pairs like USD/CHF. The British Pound and the US Dollar pair, colloquially known as “the cable,” is one of the most volatile forex pairs in the market. This pair represents two of the world’s largest and most influential economies, the United Kingdom and the United States. Their economic policies, interest rate decisions, and geopolitical events can trigger significant price movements in this pair. The currency pairs with the least changes in value tend to be the major currency pairs that are liquid and often involve larger, more developed economies.
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It lets beginner traders make money by copying the trade settings of popular investors while letting expert traders earn 20% of all profit made from their copied trades. Note that these currency trades for retail investors are primarily facilitated by online forex brokerages. Forex trading refers to the art of simultaneously buying and selling currencies. Here, the Canadian Dollar is the base currency while the Japanese Yen is the quote currency. Britain is one of the largest economies in the world, and London is considered one of the largest financial centers in the world – both of which draw a lot of attention to the Pound. Discover the factors causing volatility and how you can harness market fluctuations in your favour to better take advantage of large market moves covering the financial markets.
To determine which currency pairs are the most suitable ones, a trader must first have a look at their trading strategy. A trader utilising a range trading strategy will want to avoid exotic currency pairs but rather look at major currency pairs and certain minor pairs such as EUR/CHF and EUR/GBP. Exotic currency pairs will generally see higher volatility, while major currency pairs tend to be less volatile. In forex trading, volatility is a measure of the extent of changes in a currency’s value. It is measured by standard deviation – which is how much a price deviates from its mean. The most volatile currencies will generally have lower levels of liquidity, which means there are greater chances of drastic price movements in either direction or significant weekend gaps.
Exotics are practically not represented in the international currency markets; the economies of countries are most often closed and managed manually. Forecasting minor currency pairs is complicated by the lack of fundamental information in open sources, even if these are emerging markets currencies. Traders must track not only news on cross-currencies but also on USD, which sets the price movement for other currencies. For example, negative statistics on inflation came out in the USA – investors switched from the dollar to the British pound. As a result, the pound rose in price against other currencies, although there were no reasons for this in the UK itself.
Most volatile forex currency pairs to trade
This method is usually short-term protection when a trader is concerned about news or an event triggering volatility in currency markets. Obviously, we won’t dishearten you to trade the low liquidity currency pairs. Notwithstanding, our task is to caution unpracticed traders and novices that the danger of such trading is higher than that of trading the exemplary currency pairs. Capital.com is a pure-CFD online trading platform that lists 130+ currency pairs. These include all the volatile currency crosses we have discussed above and a wide range of Major, Minor, and exotic pairs. The NZD/JPY cross is a commonly traded minor currency pair pitting two of the largest economic giants in the pacific – Japan and New Zealand.
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Visit our page on Forex dealing to see a full list of the currency pairs we offer, along with their minimum spreads and borrowing rates. One example is the EUR/USD, which is probably the world’s most commonly traded currency pair. Its price shows how much the price of the quoted currency, the US dollar, is needed to buy one unit of the base currency, the Euro.
Volatile Currency Pairs: What You Need to Know
One of the frequently used tools for trading on short-term fundamental volatility is the Nonfarm Payrolls report. You can find out how to make money on it in the article What is the Non-Farm Payrolls Report in Forex. It all depends on the deposit/trading minimums set by your preferred forex broker.
If you are looking to trade the USD/TRY pair, you will want to watch the country’s political environment. You will also need to note that Turkey is witnessing some of the highest inflation rates in the history of the country – breaking above 80% in September 2022. You will also need to observe US economic growth and that of the EU – Turkey’s largest export market. Over the past few years, the USD/TRY currency cross went from being a moderately traded and relatively stable pair to one of the most volatile fx pairs. And this is evidenced by the fact that in the last five years, the Turkish Lira has depreciated by more than 600% against the US Dollar.
They are the currency pairs which have historically been the most popular among traders. A definitive list of the most volatile currency pairs is hard to collate, chiefly because volatility can affect different currency pairs at different times. This is because of the previously-mentioned factors, which can cause the price of a currency pair to rise or fall. Forex traders should take into account current readings of volatility and potential changes in volatility when trading. Market participants should also consider adjusting their position sizes with respect to how volatile a currency pair is.
When trading the GBP/JPY trading pair, nevertheless, consider such factors as the economic performance of both the Japanese and British economies. You also need to monitor the global economy as it affects the value of the YEN – considered the safe haven currency. When trading the GBP/AUD pair, you will need to pay close attention to such factors as the price of Iron and coal commodities. You will also need to consider the economic performance of the UK, China, and Australia because they have a direct impact on the currency pair’s price action. 81% of retail investor accounts lose money when trading CFDs with this provider.
This is because as oil prices rise, more yen must be exchanged into CAD to purchase a single barrel of oil, leading the CADJPY rate to climb as well. This pair is quite volatile and is heavily influenced by market movements. Oil prices have a big impact on the Canadian dollar and the Japanese yen as safe-haven currency. For many years, recession proof stocks buyers on the forex market have used Switzerland’s stable economy as a “haven” by buying the CHF when the market is unstable. So, when an area’s economic or political situation is unclear, this is a popular fx pair for traders. “The Chunnel” is a play on terms of the Channel Tunnel, which crosses Europe and the United Kingdom.
On the other hand, when key economic data are published, or officials make a speech, the market price makes sharp and strong movements. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. The degree of volatility shows the state of the market at different points in time.
The same report documented that the Japanese Yen was the third most traded currency, being involved in 16.8% of foreign exchange trades. There are a few trading approaches that allow speculating on highly volatile securities successfully. The most common of them are day trading, scalping, price action, swing trading, etc. Each of these strategies can be implemented, given the market is volatile. The yen is seen as a safe haven, and the Canadian dollar is a commodity currency, with its value on the currency market heavily influenced by the price of oil on the commodity market. Awareness of volatility can also help traders determine appropriate levels for stop loss and take profit limit orders.