Most Volatile Forex Pairs – Market Volatility
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The most volatile forex pairs in the trade market whose dramatic price movement offers traders an enticing opportunity to make a handsome profit. Nevertheless, trading with such currency pairs can often expose the traders to face significant risks.
Certain factors can affect the movement of volatile currency pairs, which include interest rates or geopolitical factors. As a result, volatile forex pairs generally present lower liquidity levels as compared to less-volatile forex pairs.
Before selecting any volatile forex pair, a trader should have adequate risk management, suitable trading plans, and use well-tested trading strategies.
Overview about volatile forex pairs
We have already mentioned that the most volatile currency pairs bring some enticing trading profits for the traders. This is because volatile pairs have more dramatic price movements as compared to less volatile pairs.
Increased volatility in currency pairs is not just profitable, but at the same time, it is often increasing the risk exposure for any trader.
Volatile pairs are somehow affected by the same drivers, which affects the less-volatile forex as well. This can be the geopolitics scenario, the difference in interest rate, the perceived economic strength of any country, or the import/export value.
As a new trader, you need to be careful about opening your trade position with a volatile currency pair. Always remember that volatile currency pairs have lower liquidity levels as compared to less-volatile pairs.
Plan a proper trading plan and perform a risk management strategy to maximise your traded volatile currency pairs.
How is volatility measured?
The moving average is considered to be the most well-known indicators used by traders. With this indicator, a trader can identify a price movement in a trade market for a specific period.
To identify the volatile currency pairs, a trader can also use the Average True Range. This indicator helps to measure the average change in the market prices at a given duration. Results will vary based on the length of the period being observed.
A market is generally at low volatility when no change is noticed in the market prices. But still, a release in economic data can give a sharp spike to the prices of currency pairs.
List of most volatile forex pairs reviewed
For your assistance, below we have a long list of popular and most volatile forex pairs to start trading with. Let’s dive into the discussion below:
First, we have AUD/JPY, a currency pair representing the Australian dollar against the Japanese yen, on our list. This pair enjoys high volatility due to the inverse relationship between the Australian dollar and the Japanese yen.
We all know that the Australian dollar is the commodity currency whose overall price is linked with the volume and price of Australia’s exports. This includes metals, minerals, or agricultural products.
On the other hand, the Japanese Yen is the safe-haven currency, a top favourite choice of investors during economic hardship.
To sum up, the price movement of this forex pair is a lot dramatic depending on the current global economic outlook.
NZD/JPY is a forex pairing representing the New Zealand dollar against the Japanese yen. Just like the Australian dollar, the New Zealand dollar is also a commodity currency. It has a value that is closely linked with the price of New Zealand’s agricultural exports.
Few top exports of New Zealand are meat, eggs, dairy, honey, and wood. If the price of any of these markets changes, it will directly impact NZD’s value against the Japanese yen.
GBP/EUR is a currency pair that is a combination of the British pound against the Euro. Over the last few years, this forex pair has faced constant volatility.
In 2019, the pound noticed a sudden increase in its value against the Euro. However, a sudden decrease in this volatility pair is seen if the withdrawal agreement is agreed upon.
On the 4th spot, we have the CAD/JPY forex pair, which combines the Canadian dollar against the Japanese yen. The Yen is the safe haven, and the Canadian dollar is a commodity currency.
We all know that Japan is the top importer of oil. But if the oil price increases, the cost of buying Canadian dollars with yen will increase more. This is because more of the Yen will be converted into CAD for purchasing a single oil barrel, after which the price of CAD/JPY will also rise.
For instance, if the supply of oil is reduced from the rest of the countries, then eventually, the cost of Canadian oil exports will likely increase. This is how the Canadian dollar will rise against the Yen.
The British pound and the Australian dollar have a historically stable relationship. But due to the recent trade war between China and the US, the price of AUD has been affected a lot.
Many of you do not know the fact, but Australia had wholly relied on China as the major trading partner. But the recent conflict with the US has disrupted all the trade links.
Overall, the Australian reports have somehow fallen in price, affecting its correlated relationship with GBP.
The USD/ZAR forex pair is setting the US dollar against the currency of the South African rand. Hence, the volatility in this currency pair is hugely affected by the gold price.
We all know that gold is the major exporter of South Africa, and in the world’s market, gold is priced in US dollars. This means that the gold price is correlated strongly with the weakness or strengths of the USD.
Nevertheless, if the gold price is increasing, then. As a result, the dollar price will also increase against the currency of ZAR. This can significantly benefit the South African exporters who can avail maximum US dollar for the gold on world markets.
If you are trading in a USD/ZAR forex pair, you have to perform a complete analysis of the gold price. Investigate those factors which can affect the trading price before opening any position.
On the 7th spot, we have USD/KRW, which is the forex pair of US dollars against the South Korean Won. This is because South Korean Won was introduced after the Second World War.
After the South Korean separation, the north allied with Russia, and the south allied with America. This made communism and capitalism economic disparities more apparent.
Currently, Won is being traded at almost 1000 to one against the US dollar. Due to this specific inflated exchange rate, the price movement in the USD/KRW pair is quite common.
For the traders, this currency pair is an excellent option to make quick and high profits.
USD/MXN is another most volatile forex pair which puts the US dollar against the Mexican peso. After the US 2016 presidential elections, the tension between these two nations has increased a bit. Recently, a tariff has also been implemented on Mexican exports to the US.
The current tariff rate of around 20% has caused high volatility in this forex pair, increasing it more.
The USD/TRY pair is a combination of the US dollar and Turkish lira. Since 2016, TRY has been an extremely highly volatile currency.
Turkey has been going through an unstable economic condition, due to which the lira will stay volatile until the situation is not settled.
Based on the current outlook for the lira, USD/TRY is the major currency pair to look for to start successful trading. This is because it’s a highly volatile pair on which a trader can achieve quick profits in the short or long runs.
Last we have UAD/BRL, which is a combination of US dollar against Brazilian real. This currency pair is known to create frequent price movements for the traders into scalping or day trading.
Brazil is following one such economy in which a trader can capitalise on the forecasted future development of the South American nation. But sometimes, Brazil’s politics is quite unstable, showing its direct impact on the currency price.
What are the least volatile forex pairs?
Well, the minor volatile forex pairs are considered to be the major ones. These are such currency pairs that have already gained enormous popularity among traders.
Few famous pairs are USD/CHF, GBP/USD, EUR/USD, and USD/JPY.
Besides these four traditional pairs, a variety of commodity currency pairs are also available. This includes USD/CAD, AUD/USD, and NZD/USD. In addition, some cross currency pairs are EUR/CHF, EUR/GBP, and EUR/JPY.
What does currency volatility depend on?
Higher liquidity of the currency pair means that the pair will have lower volatility. It is harder to move the price of a pair if the demand and supply of that currency pair are equally high. Thus, this particular increase will keep the volatility low.
On the other hand, if the supply and demand are low, you can dramatically move the currency pair’s price. This is the condition in which higher volatility is expected. You will notice this behaviour more frequently in lesser-used forex pairs.
Lesser used currency pairs are more volatile because their demand and supply are lower than the bigger traded currency pairs. Those currency pair combinations which are widely used and are in circulation are less volatile and are more stable.
Sometimes volatility in currency pairs is also possible due to big economic circumstances of a sudden jolt in the market. Big economic announcements have the power to move the prices and make the less demanding currency to be the most demanding one.
How can you trade with volatile forex pairs?
Traders can efficiently perform trade on volatility in a forex market through the two most popular trading ways. This includes opening a spreading betting account or a CFD account with any broker. Spread betting accounts are just limited to the EU clients.
With spread bets and CFDs, traders can acquire financial derivatives to decide whether they want to trade for long or cut short in case the market starts to fall.
To begin trading volatile forex pair, traders have to follow the below-mentioned steps carefully:
- Do a bit of research on the volatile currency pair in which you want to trade. Take help from the list which we have shared above for you.
- Once you have made the selection, conduct an in-depth analysis by combining technical and fundamental analysis to see how the trade market works.
- Now choose a trading strategy with which you feel you can comfortably start trading. Please familiarise yourself with that strategy and test it. See what profits and risks the strategy can bring along for you.
- Search for a reliable forex broker who can meet all your trading requirements. Then, open a live account for trading and deposit a small amount.
- Finally, traders can open the trade position with their selected forex pair and monitor its market movements. Then, open or close the pair according to the decided trading plan.
Although the process seems straightforward, a little care and extensive knowledge are required to perform it successfully. Therefore, never start trading unless you have the necessary Forex knowledge and basic know-how of currency pairs.
Tips to follow
- Always trade by using indicators and charts.
- Trade around events and news. Don’t follow the news altogether. Instead, keep yourself updated with the latest trends.
- Use the strategy of stop-loss and take profit.
- Keep the position sizes low.
- Follow the trading plan and forex strategy side by side.
- Collect a trading journal to record gains and losses side by side for future trading. Then, avoid repeating those mistakes again and again.
To trade with volatile currency pairs, a trader should stay updated with both volatile and non-volatile currency pairs for successful trading.
Knowing about the volatility of any currency pair can help traders understand at what level they can make a profit and what level of loss they can face. It can be equally helpful for the traders who are not trading according to the market volatility to prevent substantial losses.
Jason Morgan is an experienced forex analyst and writer with a deep understanding of the financial markets. With over 13+ years of industry experience, he has honed his skills in analyzing and forecasting currency movements, providing valuable insights to traders and investors.
Forex Content Writer | Market Analyst