The Most Volatile Currency Pairs in Forex Trading

most volatile currency pairs

As a result, any changes in the price of any of these markets will affect NZD’s value against the Japanese yen. This capacity enables experienced traders to revise tactics and change positions swiftly according to conditions which sets them apart whenever they are trading under unpredictable markets. Foreign exchange (FX) volatility is heavily impacted by economic indicators, which serve as pivotal variables in assessing a country’s financial health. These measures encompass key figures such as GDP growth, unemployment, inflation, and retail sales data. The Rand’s importance as a major producer of gold means changes in its price also hold weighty consequences. In addition, socio-political issues and credit ratings from foreign organizations can contribute significantly to fluctuations in value.

How to Trade Forex Volatility

The USD/MXN pair shows the exchange rate between the US dollar and the Mexican peso. Mexico exports oil and gas, cars, electrical equipment, copper and gold. As oil accounts for almost 4% of total exports, its price influences the value of the peso. As a commodity currency, the Australian dollar is highly correlated with the value of the country’s exports. An increase in volatility can be caused by the publication of economic indicators or other news related to the currency.

The Future Outlook on Forex Volatility

In addition, AUD is a commodity currency, and its price connects highly to the value of Australia’s exports. Low liquidity means that the market is more volatile, and this can cause drastic changes in prices. When the market has higher liquidity, its volatility is low, meaning prices do not fluctuate drastically.

EUR/USD Dives While USD/CHF Extends Rally

Yes, volatile forex pairings provide a higher level of risk due to their unexpected price fluctuations. When trading these pairs, you must have a solid risk management strategy and adequate position sizing. 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. As a forex trader, one of the most important decisions you’ll need to make is which currency pairs you want to trade.

There’s no right or wrong answer — but the decision you make will influence everything from your trading strategy to your risk management. Major economic news and data releases can spark huge volatility on related currency pairs. Expect fast-paced price action around events on volatile pairs like USD/TRY. Manage risk around news properly and scale out of trades incrementally. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.

The powerful Australian extractive industry struggles because of a slowdown in the Chinese market. Due to the unstable trade relationship between the US and China, there has been a decline in Australian exports to China, and this is a problem for Australian manufacturers and exporters. Trading against the stable pound sterling, the AUD is experiencing volatility. 67% of retail investor accounts lose money when trading CFDs with this provider.

The most volatile currency pairs offer enticing prospects for profit because their price movements can be more dramatic than less volatile pairs. However, while increased volatility may offer more scope to realize a profit, it can also increase a trader’s exposure to risk. However, while increased volatility may offer more scope to realise a profit, it can also increase a trader’s exposure to risk. Besides the increased risk, high volatility also comes with a higher potential reward, so traders use this to their advantage.

Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. The GBP/AUD pair is comprised of the British pound and the Australian dollar.

On the one hand, there is sterling, a reserve currency, which also represents the largest financial centre. On the other hand – the euro, which is a  strong and stable currency and legal tender across multiple European countries. This is due to the weak economies which are unstable and cause the volatile fluctuation of the local currency. The major pairs which are the most traded and are of the strongest economies have a lower volatility as they have stable and strong economies.

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Volatility refers to the frequency and amplitude of price fluctuations. It is an important indicator of changes in exchange rates, so traders most volatile currency pairs and investors use it to assess risk. If, in a set time, the price changes dramatically and with large spreads, the volatility is high.

During a purchase, traders buy the base currency and sell the quote currency. Also, when selling, traders sell the base currency and gain the quote currency. This article represents the opinion of the Companies operating under the FXOpen brand only.

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. 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.

We recommend that you seek independent advice and ensure you fully understand the risks involved before trading. Of course, we won’t discourage you from trading the low liquidity currency pairs. However, our task is to warn inexperienced traders and newbies that the risk of such trading is higher than that of trading the classic currency pairs. Although it has limitations, volatility offers significant opportunities for taking advantage of price fluctuations. The frequent and rapid changes occurring amongst volatile pairings can offer valuable profit potential in bullish and bearish markets.

The US has been facing economic and political challenges, including the COVID-19 pandemic, social unrest, and the presidential election. These factors make the GBP/USD pair highly volatile, with significant price movements occurring frequently. The volatility of your currency pair will affect almost every aspect of your forex experience. Trading more volatile currency pairs can mean bigger profits, but it can also mean bigger losses. As a result, you’ll need to balance the potential gains against the increased risks.

As a result, currency pairs which contain AUD have seen increased volatility since the start of the trade war. To make matters worse for the GBP/AUD pair, the pound has seen increased volatility since the Brexit referendum result in 2016. Speculators are waiting to see whether volatility in this pair will ease off after October 31 – the official deadline for the UK’s departure from the EU to be finalized.

On the other hand, traders that can accept higher risk would prefer to trade high volatility pairs to profit from the volatile price movements. Keep in mind that other factors such as yourposition sizeshould be part of your risk management. Indeed, the range of exotic pairs’ movements is much broader than that of the major ones.

Milan Cutkovic has over eight years of experience in trading and market analysis across forex, indices, commodities, and stocks. He was one of the first traders accepted into the Axi Select programme which identifies highly talented traders and assists them with professional development. It has been prepared without taking your objectives, financial situation, or needs into account.

In fact, investors often look to JPY to bring stability to an otherwise risky portfolio. The inverse relationship between AUD and JPY gives rise to high volatility, making it a popular choice amongst traders who are looking to cash in on price fluctuations. This guide examines the most volatile forex pairs and what makes their prices fluctuate so drastically. We’ll also look at effective strategies to trade these pairs and manage the hazards of their potentially explosive moves.

We have not established any official presence on Line messaging platform. Therefore, any accounts claiming to represent IG International on Line are unauthorized and should be considered as fake. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. Our comprehensive guide examines the most volatile forex pairings, revealing their potential for both profit and risk. These combinations offer opportunities for quick gains and cater to various trading techniques.

The “Cable,” which refers to the GBP/USD pair, experiences high levels of volatility due to various factors such as UK economic policy, developments related to Brexit, and changes in the US economy. To effectively trade USD/TRY, one must comprehensively comprehend Turkey’s geopolitical developments and macroeconomic factors. Employing breakout strategies to identify substantial shifts during economic updates or policy alterations can benefit traders.

On the other hand, when key economic data are published, or officials make a speech, the market price makes sharp and strong movements. Two of the most popular ways to trade forex volatility – or volatility in general – is by opening a CFD or spread betting account. CFDs and spread bets are financial derivatives, meaning that they afford you the ability to go long to bet on the market rising, as well as short to speculate on it falling. TRY has been highly volatile since 2016 following a failed coup d’état and the subsequent ‘purges’ that have been taking place in Turkish society. Since China is one of Australia’s main trading partners, this does not bode well for Australian manufacturers and exporters, who rely on strong trade links with China to maximise their profits. Some of the top exports from New Zealand are dairy, eggs, meat, wood and honey.

In conclusion, the forex market is highly volatile, and currency pairs experience significant price movements frequently. The most volatile currency pairs are those that are affected by economic and political uncertainties in their respective countries. Traders should be cautious when trading these pairs and use risk management strategies to minimize losses.

most volatile currency pairs

With so much volatility in the market, it can be tough to predict exactly which currency pairs will be the most volatile in 2022. However, we have compiled a list of the most volatile currency pairs, along with some of the least volatile and the most liquid based on trends and forecasts from the forex markets. Just before we get into which the most volatile currency pairs are, it is important that we have a basic understanding of both what a currency pair is and what volatility is. So if we start with currency pairs, each pair is made up of two different currencies, the base currency, and the quote currency.

The Canadian Dollar has an inverse relationship to the Japanese Yen, just as the Australian Dollar. With Canada being a major oil producer, CAD is sensitive to a change in oil prices. Volatility in oil has picked up significantly since the beginning of the pandemic, making CAD pairs – and thus CAD/JPY – increasingly volatile. Illustrated below, the average true range (ATR) on USD/CHF ranges between 45-pips and 65-pips, a low average true range compared to other pairs. The average true range of a currency is one of the many ways to measure the volatility of a currency pair. Bollinger Band width is another popular technical indicator used to measure volatility.

Proper consideration must be given to the advantages and disadvantages of trading in volatile forex pairs. Though there is potential for quick, significant profits, this can only be realized by savvy traders navigating rapidly fluctuating prices while identifying optimal entry and exit points. Liquidity can be described as the ability to buy or sell a certain currency without causing a significant market move. For example, an order to buy 50 million EUR/USD will hardly move this highly liquid currency pair, while it could have a notable impact on an exotic currency pair such as USD/TRY.

  1. Volatility is something that is spoken about quite a lot when it comes to trading and forex, volatility is basically the amount of distance that the price fluctuates.
  2. Sentiments are inherently volatile and can shift rapidly, particularly when fueled by real-time news updates or social media discussions.
  3. These combinations offer opportunities for quick gains and cater to various trading techniques.
  4. Experienced traders may profit from higher price fluctuations in volatile pairings, but this needs expertise, discipline, and a well-defined approach.

The volatility of the pair is heavily influenced by the value of gold because gold is one of South Africa’s main export commodities, and it’s priced in USD on the world market. Thus, the price of gold depends on the strength or weakness of the dollar. This pair includes the Australian dollar and Japanese yen and is considered one of the fast-moving forex pairs.

The Eurozone has been facing economic challenges, including high unemployment rates and low productivity. Japan, on the other hand, has been struggling with low economic growth and high public debt. These factors make the EUR/JPY pair highly volatile, with significant price movements occurring frequently. The US dollar and South African rand is also one of the most volatile currency pairs. The key reason behind this is that South Africa is one of the world’s main exporters of gold.