According to research in South Africa, the most volatile currency pairs often offer enticing predictions for profit because their price movements can be more dramatic than less volatile pairs. But, while increased volatility may offer more scope to realise a profit, it can also rise a trader’s risk exposure.
In general, volatile pairs are affected by the same drivers as their less-volatile counterparts, which can include interest rate differentials, geopolitics, the perceived economic strength of each currency’s issuing country, and the value of these nations’ imports and exports. Traders must remember that volatile currency pairs often have lower levels of liquidity than their less-volatile counterparts. A well-thought-out trading plan and risk management strategy is key.
List of Volatile Forex Pairs
AUD/JPY represents a pairing of the Australian dollar against the Japanese yen.
The pairing enjoys high volatility due to the inverse relationship between the Australian dollar and Japanese yen. The Australian dollar is a commodity currency, which means its price is linked to the price and volume of Australia’s exports, particularly minerals, metals and more. Contrariwise, the Japanese yen is widely considered to be a safe-haven currency, which means that investors often turn to it in times of economic adversity.
As a result, the price movements of this pair can be very dramatic depending on the current global economic outlook.
NZD/JPY is a pairing of the New Zealand dollar against the Japanese yen and much like the Australian dollar, the New Zealand dollar is a commodity currency with its value is closely tied to the price of New Zealand’s agricultural exports, making this pair particularly volatile.
Top New Zealand exports include: dairy, eggs, meat, wood and honey and as a result, any changes in the price of any of these markets will affect NZD’s value against the Japanese yen.
GBP/EUR is a pairing of the British pound against the euro and following Brexit, this pair has seen constant in volatility. Volatility in this pair could decrease if a withdrawal agreement is made, but so far there has been no sign of consensus.
CAD/JPY pairs the Canadian dollar and the Japanese yen. 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.
The GBP/AUD pair is made up of the British pound and the Australian dollar. Historically, these two currencies have been linked, mainly since Australia is part of the Commonwealth of Nations. But, being a commodity currency– the price of AUD is heavily linked to the value of Australia’s exports.
A knock-on effect of the US’s trade war with China is that Australian imports to the Chinese markets have fallen resulting in currency pairs which contain AUD have seen increased volatility since the start of the trade war.
USD/ZAR sets the US dollar against the South African rand and the Volatility in this pair is greatly affected by the price of gold, because gold is one of South Africa’s main exports and priced in US dollars on the world market.
If the price of gold is rising, the price of the dollar will most likely also increase against ZAR.
The USD/KRW is a pairing of the US dollar against the South Korean won. The South Korean won, in its current form, was formed after the Second World War. Following a separation, the South allied with America and the North allied with Russia and as a result, the economic differences of capitalism and communism became apparent.
The won currently trades at around 1000 to one against the US dollar.
The USD/BRL pair is the US dollar against the Brazilian real, a pair that frequently enjoys frequent movements, in turn creating opportunities for traders who focus on day trading or even scalping.
USD/TRY incorporates the US dollar and the Turkish lira. The Turkish lira has been highly volatile since 2016 following a failed coup d’état and the subsequent ‘purges’ that have been taking place in Turkish society, and politics in Turkey has been highly unstable ever since.
Because of the uncertainty surrounding the lira, USD/TRY is a key pair to watch.
USD/MXN – puts the US dollar against the Mexican peso – with tensions rising between these two countries after US President Donald Trump won the 2016 presidential election.
The current tariff rate of 20% has already caused volatility in this pair to substantially increase.
What is the difference between trading currency pairs with high volatility versus low volatility?
Currencies with high volatility will normally move more pips over a certain period than currencies with low volatility and this will lead to an increased risk when trading currency pairs with high volatility. Currencies with a high volatility are more prone to slippage and due to high-volatility currency pairs making bigger moves, traders should determine the correct position size to take when trading them.
What are the least volatile currency pairs?
The least volatile currency pairs are generally the majors and can include EUR/USD, USD/JPY, GBP/USD and USD/CHF.
How to trade forex volatility
There are 5 simple steps that will help traders to get start in trading forex volatility:
- Research which forex pair to trade
- Carry out analysis on that forex pair (technical and fundamental).
- Choose a forex trading strategy
- Create an account and deposit funds
- Open, monitor and close a first position
According to research in South Africa, the forex market is one of the biggest and most active markets in the world. In laymen’s’ terms, trading on the forex market basically means making profits by purchasing or short selling one or more currency pairs. By using different technical analysis indicators, fundamental analysis or a combination of both, traders evaluate the future movement of one currency in relation to another.
Technically speaking, forex trading is all about knowing what to trade and when it comes to the active trade of forex currency pairings, volatility is an essential part of most strategies. Whether traders are interested in pursuing profit from hypothetical endeavours or hedging financial risk, a currency’s inherent volatility is one aspect of its behaviour that must be accounted for.
Volatility is an important consideration in everything from forecasting weather patterns to projecting the future price action of trades.
All currencies are defined according to the international standard code or ISO currency code and labelled with three-letter tags. A currency pair comprises of a base currency and a second, quote currency. The value following the currency pair symbolizes how many units of the quoted [second] currency equal one unit of the base currency.
Executing forex trade orders means that traders will buy the base currency and sell the quoted currency at the same time. A sell order would be performed by selling the base currency and buying the quoted currency.
There are different categories of currency pairs, including:
- Major currency pairs – These contain the US dollar and are most commonly thought to be among the most liquid pairs
- Cross currency pairs – Where the US dollar is neither a base or quoted currency
- Minors – Cross currency pairs that contain some of the other major currencies such as the EUR, JPY or GBP
- Exotics pairs – These contain one major currency and one from an emerging market
Before a trader enters their first trade, it’s important to learn about currency pairs and what they signify.
- In the forex market, currencies always trade in pairs.
- The forex market uses symbols to designate specific currency pairs. The euro is symbolized by EUR, the U.S. dollar is USD, so the euro/U.S. dollar pair is shown as EUR/USD.
- Each forex pair will have a market price associated with it.
What is Forex Trading in general?
The foreign exchange – FX or forex market is a global marketplace for exchanging national currencies against each other. Currencies trade against each other as exchange rate pairs. The largest stock market in the world, the New York Stock Exchange (NYSE), trades a volume of approximately $22.4 billion each day – The currency market is over 200 times Bigger! The forex market is open 24 hours a day and 5 days a week, only closing down during the weekend.
Approximately $5 trillion worth of forex transactions take place on a daily basis, an average of $220 billion per hour. The market is largely made up of institutions, corporations, governments and currency speculators. Trading accounts in South Africa can be opened for a small amount, but a minimum 200 USD deposit is advised because an traders account balance will determine how much leverage they can use.
When it comes to Forex trading, there are many different opinions floating about. People have been called crazy, with the sentiments being – “you will lose all of your money”, “it is designed in a way that the brokers are the only ones who are getting rich with it”. Of course, there is always a chance that traders will make unsuccessful trades and lose money, but Forex trading is not the same as gambling. If a trader has enough knowledge, understand the market and can implement strategies, they can master the FX trading and become extremely successful.
Forex trading may be risky business, South Africa included and while Forex trading is not a successful path for everyone, anyone can reach success in it. South Africa is a great example when it comes to the popularity of Forex trading.
Worldwide Forex Market Hours
Each exchange, worldwide is open weekly from Monday through Friday and has unique trading hours, but the four most important time windows are as follows:
- London: 3 a.m. to 12 p.m.
- New York: 8 a.m. to 5 p.m.
- Sydney: 5 p.m. to 2 a.m.
- Tokyo: 7 p.m. to 4 a.m.
While each exchange functions independently, all trade the same currencies. Therefore, when two exchanges are open, the number of traders actively buying and selling a certain currency will dramatically increase. The bids and asks in one forex market exchange immediately impact bids and asks on all other, reducing market spreads and increasing volatility.
The most favourable trading time is the 8 a.m. to noon overlap of New York and London exchanges and from 5 p.m. to 6 p.m. in the Singapore and Sydney exchanges, where there is far less volume than during the London/New York window.
Traders must remember – High Volume Forex Trading Hours Don’t guarantee Profits
Everybody knows that shop prices are not static and they can rise or fall at any time.
Often times shoppers may pop into a shop and see that the price of for instance chocolate has risen, just to return the next day to see it has risen again – Why does the price rise so quickly?
So simply put, volatility means the rate at which the price of chocolate can rise and it can be measured both as a percentage and in monetary units. Volatility is every so often associated with the price fluctuations or the amplitude of the price movements.
Volatility is regarded by Forex traders as one of the most important informational indicators for decisions on opening or closure of currency positions. Volatility plays a very crucial role in risk assessment for financiers. When traders say that market is highly volatile this means that currency quotations change drastically during a trading session. For example, if it’s too high, they try to reduce the volume of their transactions. At first glance, volatility seems like a bad thing, but it’s not, in fact the higher it is, the larger the potential earnings, (and losses), in the Forex market.
There are two types of volatility:
- Historical volatility equals to standard deviation of an asset values within specified timeframe, calculated from the historical prices.
- Expected volatility is calculated from the current prices on the assumption that market price of an asset reflects expected risks.
Identifying Stable Currencies and Volatile Currencies
While almost any currency can experience volatility certain currencies have a tendency to remain more stable against their peers and these will generally be currencies representing economies that have differentiated production of goods and services, low inflation, stable trade and balance of payments indicators, stable political systems, balanced government accounts, and stable and predictable monetary policy.
Stable and Volatile Currencies
While volatility patterns may change at any time, some currencies have gained a reputation for showing greater stability over time – including:
- Norwegian krone
- Singapore dollar
- New Zealand dollar
- Hong Kong dollar
- Swiss franc
The governments who back these currencies have developed reputations for maintaining sound public sector accounts and limited intrusion in market affairs. There are also major heavy-duty currencies that are viewed to maintain general long-term stability, including –
- S. dollar
- British pound
- Chinese renminbi
- Japanese yen
However, these are contrasted by the volatility of some major emerging market currencies, which have been more powerfully affected by local policy shifts and global supply and demand factors. These include:
- Brazilian real
- Russian ruble
- Mexican peso
- Argentine peso
Key factors that affect Volatility
Many factors impact the market and affect its volatility including:
- Volatile currency pairs follow the technical areas for forex trading, like price patterns, resistance levels, support, etc.
- Traders must stay up to date with all the latest forex news, forex pair prices and analysis
- Any type of release of data can impact the volatility of currency pairs.
- Technical analysis helps the traders with measuring volatility.
Apart from these factors, a forex trader must keep in mind what is happening around the world which could have massive impacts on volatility.
Most volatile forex pairs
Currency pairs differ in terms of volatility levels and traders can decide to trade high volatile pairs or pairs with lower volatility. The volatility of a currency pair shows price movements during a specific period. Smaller price movements will indicate lower volatility whereas higher or frequent movements mean higher volatility.
The price movement of the currency pair is commonly considered in terms of pips, so if a currency pair moves by 200 pips on average during a certain period it will be more volatile than a pair moving 20 pips in the same period. A volatility level is affected by major economic data releases, political events, liquidity or simple supply and demand.
The volatility of a currency pair can change over time as factors change.
Most volatile currency pairs include:
(to be looked at in more detail later in the article)
Least volatile currency pairs
Exotic currency pairs are considered to be more volatile because of limited liquidity and unstable economic conditions in emerging economies.
Forex is the largest and most volatile market in the world with hundreds of currency combinations to choose from. Volatile currency pairs can offer opportunities for quick profits but, these ‘quick’ profits sometimes come with an increased degree of risk. In the end, the forex market is full of irregularities and it is very important to keep a close eye on the market determinants and indicators that measure the volatility, according to research in South Africa.
Frequently Asked Questions
What are the factors that influence the volatility of currency pairs?
Factors such as geopolitics, interest rate differentials, value of imports and exports of a country and the perceived strength of each currency’s issuing country.
What are the most volatile forex pairs?
Here is a list of the 10 Most Volatile Forex Pairs
What are the major forex currency pairs to trade?
USD to CAD
What is the easiest forex pair to trade for beginners?
Some traders are of the opinion the EUR/CHF is the most suitable currency pair for beginners.
What are the 5 most traded currencies in the world?
US Dollar (USD),
Japanese Yen (JPY),
Great British Pound (GBP),
Australian Dollar (AUD).