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The Most Volatile Currencies and How to Trade Them


The Most Volatile Currencies and How to Trade Them. The forex market is vulnerable to a variety of factors that affect its volatility, and many traders are looking for ways to strategize to take advantage of the most volatile currency pairs.

The main topics of the most volatile currencies and how to trade them:

  • Most Volatile Currency Pair
  • The Most Volatile Currency Pairs By Type
  • Low Volatility Currency Pairs
  • How to Trade Volatility Currency Pairs
  • Key Things to Know About Volatility

Currency volatility, often measured by calculating the standard deviation or range of currency price movements, gives market participants an idea of ​​how much currencies can move on average over a given period of time. Traders can also measure volatility by looking at the true average range of a currency pair or by looking at the percentage point of the range.

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The higher the level of currency volatility, the higher the level of risk, and vice versa. Volatility and risk are usually used as interchangeable terms. Different currency pairs have different levels of volatility on average.

Some traders enjoy the higher potential rewards that come with trading volatile currency pairs. However, this increased profit potential also carries a greater risk, so traders should consider reducing their position size when trading highly volatile currency pairs.

Most Volatile Currency Pair

The most volatile major currency pairs are:

  • AUD/JPY (Australian Dollar/Japanese Yen)
  • NZD/JPY (New Zealand Dollar/Japanese Yen)
  • AUD/USD (Australian Dollar/US Dollar)
  • CAD/JPY (Canadian Dollar/Japanese Yen)
  • AUD/GBP (Australian Dollar/Pound Sterling)

Other major currency pairs, such as EUR/USD, USD/JPY, GBP/USD and USD/CHF, are generally more liquid but less volatile. It is often found that emerging market currency pairs, such as USD/ZAR, USD/TRY and USD/MXN, can record some of the highest volatility results.

The Most Volatile Currency Pairs By Type


Emerging Markets – USD/ZAR, USD/TRY, USD/MXN

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In addition to relatively low liquidity, emerging market currencies tend to be highly volatile in particular because of the inherent risks that underpin emerging market economies. The chart below provides an example of how market currency volatility is developing, showing USD/ZAR (US Dollar/South African Rand) surging nearly 25% in just one month. There are several other examples of emerging market currency pairs that have drastically swing through history.

Low Volatility Currency Pairs

The least volatile currency pairs tend to be the most liquid major currency pairs. Also, the country’s economy tends to be bigger and more developed. This attracts more trading volume and facilitates greater price stability. In the end, given the high volume of liquidity trading EUR/USD, USD/CHF and EUR/GBP, it is not surprising that they are among the currency pairs with the least volatility.

Illustrated below, the Average True Tange (ATR) indicator on USD/CHF ranges between 45-pips and 65-pips, a low Average True Range compared to other pairs. The true average range of a currency is one of many ways to measure the volatility of a currency pair. Bollinger Band Width is another popular technical indicator used to measure volatility.

The correlation between two currencies can also have an impact on their volatility. The more positively the two currencies are correlated, the less volatility. In the example of USD/CHF in the chart above, it is common knowledge that the US Dollar and Swiss Franc are currencies that have the title as safe-haven currencies.

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The US dollar and Swiss franc tend to strengthen against other major sentiment-related currencies when the market experiences episodes of risk aversion, but the two currencies may not diverge too much from each other. This contributes to relatively low volatility readings for USD/CHF.

How to Trade Volatility Currency Pairs

Forex traders should take into account current volatility readings and potential volatility changes when trading. Market participants should also consider adjusting their position size in terms of how volatile a currency pair is. Trading volatile currency pairs requires consideration in reducing the position size.

Awareness of volatility can also help traders determine appropriate levels for stop loss and take profit limit orders. In addition, it is important to understand the main characteristics that separate the most volatile currencies from those with low volatility. Traders should also know how to measure volatility and have an awareness of events that might create major changes in volatility.

The difference between high volatility versus low volatility currency pairs

  • A currency with high volatility will usually move by a larger number of pips over a given period than a currency with low volatility. This leads to increased risk when trading currency pairs with high volatility.
  • High volatility currencies are more prone to slippage than low volatility currency pairs.
  • Since high volatility currency pairs make larger moves, you must determine the correct position size to take when trading them

There are several ways to measure volatility

To determine the correct position size, a trader must have an expectation of how volatile a currency will be. Various indicators can be used to measure volatility, such as:

  • Average True Range (ATR).
  • Donchian Channels.
  • Moving Average (by comparing the current price Moving Average).

Traders can also look at implied volatility readings, which reflect the expected level of volatility coming from the options.

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Key Things to Know About Volatility

  • Major news events like Brexit or a trade war can have a big impact on currency volatility. Data releases can also affect volatility. Traders can maintain trade ahead of data releases by using the economic calendar.
  • Volatile currency pairs still adhere to many technical aspects of trading, such as support and resistance levels, trend lines, and price patterns. Traders can take advantage of volatility using technical analysis combined with strict risk management principles.
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