The Most Volatile Currency Pairs and How to Trade Them

The trading world is filled with opportunities, challenges, and competition. And speaking of competitions, the HFM Live Trading Competition is a fantastic arena for traders to test their mettle, hone… The most successful strategy that a trader can employ during this overlap is the break-out strategy. The opening hours of the New York session witness more volatility than the other half of the day. You can employ different methods to capitalize on these different volatility levels. The MXN takes third place in the list of the most-traded currencies in the Americas, following the USD and the CAD.

  • As for the cross rates, GBP/AUD,GBP/NZD, GBP/JPY, GBP/CAD move on average for more than 100 points per day.
  • As a result, it can be important to factor in the London session when considering the volatility of these currency pairs.
  • The most volatile currency pairs will have undergone a lot of price movements within a certain period.
  • The South Korean won, in its current form, was formed after the Second World War.
  • These factors tend to drive currencies from a country in either upward or downward directions against other currencies.

The falling value of Australian exports is weakening its correlated relationship with GBP. That works well for the two currencies because Japan is a significant importer of oil. So, an increase in oil price leads to the rise in the cost of buying the Canadian Dollar using the Yen. For example, an increased inflation rate might motivate the national bank to print more currency and pump it into the economy, which leads to a fall in the value of the currency. In addition, the UK has recovered from the Brexit shock and is more likely to stabilize its economy in the coming years. On the other side of the pair, Australia is facing export issues with its main trading partner, China, as China is banning the import of specific commodities from Australia.

What Is a Currency?

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”. Volatility is an important consideration in everything from forecasting weather patterns to projecting the future price action of trades. If the price of gold is rising, the price of the dollar will most likely also increase against ZAR. 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.

  • It is a popular emerging market currency as it is fairly liquid while its volatility creates trading opportunities.
  • Notably, emerging market currencies, such as the USD/ZAR, USD/MXN, and USD/TRY are known to have the world’s highest volatility levels.
  • Shortly after his inauguration, the Brazilian real experienced a sharp fall against the US dollar.
  • This is the difference between the price at which a currency pair can be bought and sold.

The Australian Dollar tends to be in demand when traders have a risk appetite, while the Japanese Yen is a traditional safe haven currency people turn to in times of turbulence. The currency pair sees high volatility as it is highly sensitive to changes in market sentiment. The most volatile currency pairs can sometimes be hard to determine since volatility can impact different currencies at all different times. With so much volatility in the market, it can be tough to predict exactly which currency pairs will be the most volatile in 2022.

Cross pairs

Although a higher risk factor is involved in these markets, only the most experienced traders generally trade these currency pairs. Now that you know what volatility and currency pairs are and how they relate, we can look at the most volatile currency pairs. Note that the higher the level of volatility, the higher the potential risks, and the lower the volatility, the lower the degree of risk. Although historically not one of the most volatile currency pairs, the British pound and the Euro have become increasingly volatile since the Brexit vote in 2016. As leaving the European Union will undoubtedly affect Britain’s economy, investors have been keen to open a position on the currency pair at key points during negotiations.

You will also need to monitor economic growth for both South Africa and the United States. When trading the GBP/JPY trading pair, nevertheless, consider such factors as the economic performance of both the Japanese and British economies. You also need to monitor the global economy as it affects the value of the YEN – considered the safe haven currency. However, buying US dollars with a South African rand will become costlier as a result of this. As a result, traders interested in the USDZAR pair should do thorough research into the price of gold and the variables that influence it before taking a position.

Factors That Affect The Volatility of Currency Pairs

During their shared four hours, the two markets witnessed fast and large movements because high liquidity was present. The degree of volatility shows the state of the market at different points in time. If there is a significant rise in interest from bulls or bears, volatility rises. The more buying or selling pressure there is, it will quickly move to the appropriate direction. This is of course mostly visible during important economic events of the related economies.

On the other hand, when key economic data are published, or officials make a speech, the market price makes sharp and strong movements. If you have ever traded in the Forex market or at least watched price movements from the sidelines, diy financial advisor: a simple solution to build your wealth you might have noticed that the prices move non-linearly on the chart. It is also important for them to be familiar with GBP pairs and use appropriate risk management strategies when engaging in this type of trading.

Top 5 Most Volatile Currency Pairs in 2022

These often record low and inconsistent trading volumes, which make it possible for their buyers and sellers to push quoted prices up or down. It is easiest to trade currency pairs with low volatility, the quotes of which depend on a smaller number of fundamental factors. Such pairs should not have sharp price jumps, deep drawdowns, or abnormal peaks.

Forex traders therefore see volatile forex pairs as a double-edged sword. On one side, there is the allure of significant profit if the market moves favorably. The wide price swings can lead to outsized profits if a trader correctly anticipates the direction of the price change.

What are the most volatile currency pairs?

This is because NZD is also a commodity currency, with its value mainly tied to exports of meat, dairy products, eggs, honey, and wood. When any of these products change in price, it can affect the volatility levels of NZD/JPY. 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 orbex forex broker review and Asian sessions, an aggressive trader can make a pause and
prepare for trades on this or that session. One of the main reasons USD/JPY is such a good forex pair to trade during this time is that it tends to move very aggressively, making it an ideal asset for traders looking for volatility in their trades. Similarly, the USD/JPY pair is less volatile compared to other pairs, thanks to Japan’s economic stability and steady interest rates.

The current tariff rate of 20% has already caused volatility in this pair to substantially increase. The South Korean won, in its current form, was formed after the Second World War. Following separation, the South allied with America and the North allied with Russia and as a result, the economic differences between capitalism and communism became apparent.

NZD/JPY – Deeply Liquid Minor Forex Pair

The London session is a period of high volatility in the foreign exchange market, with currency pairs experiencing significant short-term price movements. Traders need to stay abreast of the latest FX news, research, and rates to anticipate probable volatility shifts. Various online sources provide information related to trading, such as our Academy, helping you make informed trading decisions when dealing with the most volatile currency pairs. Learn more about forex and refine your trading tactics with the help of Traders Central. Volatility is the measure of the price fluctuations for a particular currency or currency pair over a given period of time.

Volatility is measured using various metrics, but one of the most commonly used is the Average True Range (ATR). The ATR captures a currency pair’s average range of price movements over a predetermined period, providing a historical perspective of volatility. This indicator, however, customer success software request for proposal rfptemplate does not predict the direction of the price movement; it simply provides a measure of the currency pair’s volatility. The lira has been volatile since 2016 due to local social and political events. This instability is evident as the lira has been losing its value since 2019.