Forex Market Volatility

What Volatility Is In Forex Trading

Forex market volatility is a term used statically to describe in price variations. The market volatility is higher when the number is higher. On the other hand, the lower the number means the lower the volatility.
For example, if GBPUSD moves from 1.2500 to 1.2625, this means a volatility of 125 pips. Also, if EURUSD moves from 1.1200 to 1.1300, this will represents a volatility of 100 pips. Looking at these two currency pairs, you can now compare the volatility and conclude which pair is more volatile during a specific time frame.

Note: It is jmportant to acknowledge that pips are not always the ideal tool to measure market volatility. This is because some pairs may have a high variation in pip value.

How Do You Measure Volatility?

Forex Market Volatility is the difference between the high and low values of a symbol price. Traders use indicators to measure forex market volatility such as the Average True Range aka ATR , Moving Averages, Standard Deviation and Bollinger Bands. To save time, this table will help a trader to quickly compare multiple forex pairs across different time frames.

Why Volatility Is Important In Forex Trading

Without volatility there will be no point in trading the markets. It tells a trade how drastically currencies has move within a certain timeframe. It helps a trader to tweak their trading strategies, systems and times to the market conditions. A forex trader who is after low and steady returns that takes less risks usually prefers to trade low volatile currency pairs. Whereas a high risk trader would prefer to trade high volatile currency pairs to profit the fast swings and price action.

How Are Currency Pairs Affected by Volatility?

Currency price movements in general is a result of buy and sell of an instrument. Volatility is causes by the increase or pressure of buyers and sellers which makes the markets rise of fall at fast rate.
Market volatility is more usually before, during or after an important economic event.

Most of our students use Forex Factory for economic news updates!

What Are The Most Volatile Pairs?

Weak economies that are unstable can cause the volatile fluctuation their currency. Exotic and cross pairs are the most volatile. The most traded major pairs have the strongest economies and as a result turn to have lower volatility. This is due to the strength and stability of their economy.

How Forex Volatility Is Used

To analyse and compare the different volatility forex pairs, please use the above table. To easily filter out irrelevant dates for a trading strategy, define the maximum and minimum levels by filtering out dates that are irrelevant. Enter the currency volatility section and it will reveal a great deal of information including hourly, daily, weekly or even monthly volatility. You can then compare the metrics against other pairs.

You can also learn about market sentiments here.