Getting to know currency volatility


Trading in Forex goes 24 h a day, which means traders can always check up with the market and make trading operations. However, for successful intraday trading you need most volatile currency pairs, which will make your trading most efficient.

Volatility of a currency pair is an average number of points that the pair passes over a certain period. You can detect both intraday volatility and volatility during trading sessions. Note that the volatility of currency instruments in Forex also depends on the time of the day and geography. For example, EUR/USD will be much less volatile during the Asian session than during the European one. USD/JPY, on the contrary, is much more volatile during the Asian session.

Classifying currency pairs by volatility

Most volatile pairs are GBP/CHF and GBP/JPY. Their volatility is 100-140 points on average depending on the trading session. For such pairs, choose a trading strategy that correlates with their ranges.

Moderately volatile pairs would be USD/CHF, GBP/USD, USD/CAD, EUR/USD, USD/JPY. They cover about 60-100 points over a trading session.

Currency pairs of low volatility are EUR/GBP, NZD/USD, AUD/USD, EUR/CHF, AUD/JPY. On average, they pass up to 60 points during a trading session.

Choosing your instrument, always take account of the volatility: the more volatile your pair, the more money you can both make and lose.

Trading peculiarities of the most volatile Forex pairs

If a trader is more inclined to risky trading in Forex, choose such pairs as GBP/CHF and GBP/JPY. Their high volatility is explained by the fact that these currencies initially quote with the USD and only then with all other currencies. For example, if you need to convert the British pound into the yen, you first convert pounds into dollars and only then into the yen. In other words, there happen two exchange operations: GBP/USD and USD/JPY. And as long as they have negative correlation, i.e. go counter each other, volatility in GBP/JPY grows. With GBP/CHF, things are the same.

Trading volatile pairs in Forex, you need to keep reviewing you trading strategy all the time according to the market conditions. This is because steep surges in the exchange rate might lead to serious losses or decrease the efficacy of your trading.

Also remember that the volatility of currency pairs in Forex noticeably increases when the American and European trading sessions coincide. This is because foreign investors, reshuffling their investment portfolios and getting ready to invest in American securities, convert their national currencies. In other words, they exchange euros, yen, francs for dollars.

Closing thoughts

All in all, checking up with the times of increased volatility in Forex, traders who work intraday choose the best time and instruments. When volatility is lower than average, for example, at the border of the European and Asian sessions, an aggressive trader can make a pause and prepare for trades on this or that session.

By Dmitriy Gurkovskiy, Chief Analyst at RoboForex


Any forecasts contained

herein are based on the author's particular opinion. This analysis may not be

treated as trading advice. RoboForex bears no

responsibility for trading results based on trading recommendations and reviews contained herein.