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This could lead to potentially larger price swings, which can offer both higher profit potential and increased risk. 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.

• However, the fundamental factors could disturb the balance of supply and demand.
• Finally, crosses (pairs which do not include the US dollar) and ‘exotic’ crosses (pairs that include a non-major currency), also tend to be more volatile and to have bigger ask/bid spreads.
• You can look at your Forex list on your trading platform with an Average True Range indicator to pip point the larger moving currency pairs.
• In the realm of the foreign exchange market, understanding the concept of volatility is crucial.

More volatility means more trading risk, but it also means more trading opportunities because price movements are larger. Due to the dramatic movement of prices of certain currency pairs, they offer traders more enticing predictions for profit, although trading such pairs may also expose traders to significant risks. According to the calculator, USD/HKG is one of the least volatile Forex currency pairs among the exotics ones and has almost no volatility. This is because the country’s government firmly holds a stable ratio of the Hong Kong dollar to the US dollar. The narrow currency corridor is kept at the expense of gold and foreign exchange reserves and interventions.

List of volatile forex pairs

According to the Bank of International Settlements, its average daily trading volume is around $5.2 trillion. This trading volume is generated by the exchange of currency pairs — the name given to a pair of currencies which are bought and sold simultaneously. In this article, we’ll guide you through the top 10 most volatile currency pairs and explain how volatility can shape the forex market. Our list of the most actively traded currency pairs starts with the EUR/USD, which has the greatest trading volume. All six currency pairs offer the liquidity that investors who trade them need for profits.

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. As a result, since the commencement of the trade war, currency pairs containing AUD have seen greater volatility. To make matters worse for the GBPAUD pair, after the Brexit referendum outcome in 2016, the pound has seen greater 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. There remains speculation about the duration of Erdogan’s tenure and the potential impact of a successor, if any, on the value of the lira on global currency markets.

AxiTrader Limited is a member of The Financial Commission, an international organization engaged in the resolution of disputes within the financial services industry in the Forex market. When acquiring our derivative products you have no entitlement, right or obligation to the underlying financial asset. AxiTrader is not a financial adviser and all services are provided on an execution only basis.

What are the most volatile currency pairs?

It is the unpredictable movement of exchange rates in the Forex market and it may lead to either substantial losses or gains in the Forex Market as it is the principal cause of foreign currency risk. There are various factors that may affect market volatility namely world events, the performance of a certain sector in the market, political factors, and even natural disasters. Such factors are often beyond the control of traders however, traders can prepare themselves adequately should volatility in the market increase. Considering these factors, it makes the NZD/JPY particularly susceptible to swings in broad-based market sentiment trends.

Overall, AvaTrade is considered a low-risk trading platform and can be summarised as a trustworthy forex broker. There is, however, one common pattern that frequently emerges in Forex trading which involves what is known as ‘herd mentality. This occurs when traders decide to take a chance on a volatile market due to the influence of other traders who are doing the same.

Exotic pairs are less liquid and have lower trading volumes compared to major or minor pairs, resulting in wider spreads. This volatility often stems from economic, political, or financial instability in the emerging market economies, making these pairs potentially profitable but also risky. In forex trading, volatility refers to the frequency and magnitude of changes in a currency’s value. Depending on how much its value deviates from the average, volatility is a measure of standard deviation.

Oil prices have a big impact on the Canadian dollar and the Japanese yen as safe-haven currency. This is especially true when we see any key policy statements made in Britain. Changes in the price of this currency pair depend on the economic condition of the UK and EU economies, their trade relationships, and inflation rates.

Looking for currency risk management solutions?

You should consider whether you understand how this product works, and whether you can afford to take the high risk of losing your money. 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. As for the cross rates, GBP/NZD, GBP/AUD, GBP/CAD, and GBP/JPY are the most fluctuating currency pairs. Awareness of volatility can also help traders determine appropriate levels for stop loss and take profit limit orders. Furthermore, it is important to understand the key characteristics separating the most volatile currencies from currencies with low volatility readings. Traders should also know how to measure volatility and have an awareness of events that might create big changes in volatility.

• Throughout the year, the Japanese Yen has been on a losing streak – having dipped close to 30% against the US Dollar.
• When volatility is lower than average, for example, at the border
  of the European and Asian sessions, an aggressive trader can make a pause and
  prepare for trades on this or that session.
• We observe that in the recent past, Australia has been engaged in a direct trade war with China, the largest import market for their commodities.
• The USD/CNY currency pair represents the relationship between the U.S. dollar and the Chinese renminbi, more commonly known as the yuan.
• Losses can exceed deposits.Past performance is not indicative of future results.

When currencies were released from these chains, speculators stepped in and wild swings erupted in immediate volatility, which no one expected. Arbitrage opportunities were plentiful, but the sheer volume of attention by speculators over the years gradually brought volatility in the forex market back down to acceptable norms. Each step involves a process and beginner traders will need to conduct the necessary research into each to ensure that they are prepared for trading in a live environment where their funds are at risk.

GBP/USD: Trading the “Cable”

Adding to this, Japan is a top importer of oil, which means that as the price of oil increases, the cost of buying Canadian dollars with yen also tends to increase. This is because as oil prices rise, more yen must be converted into CAD to buy a single barrel of oil, with this increase causing the price of CAD/JPY to rise. The hourly volatility diagram for NZD/USD, which peaks at 12 and 21 o’clock (GMT), is of particular interest. It entirely coincides with the time of economic data releases for the USA and New Zealand. It also confirms the thesis on volatility increase upon major financial data releases mentioned at the beginning. If you have ever traded in the Forex market or at least watched price movements from the sidelines, you might have noticed that the prices move non-linearly on the chart.

For example, EUR/USD will be much less volatile during the Asian session than during the
European one. USD/JPY, on the contrary, is much more volatile during the Asian session. However, this will also make it more expensive to buy US dollars with South African rand. Because of this, traders who are interested in the USD/ZAR pair should takeover meaning with example carry out sufficient analysis on the price of gold and the factors which affect its price before opening a position. Conversely, the Japanese yen is widely considered to be a safe-haven currency, meaning that investors often turn to it in times of economic hardship – something which they do not do with the Australian dollar.

This stands for percentage in point (or price interest point) and is used to represent tiny shifts in value. In general, a pip can be thought of as the fourth decimal place in a spread — for example, $0.0001. Discover the factors causing volatility and how you can harness market fluctuations in your favour to better take advantage of large market moves covering the financial markets. Note that these currency trades for retail investors are primarily facilitated by online forex brokerages. Forex trading refers to the art of simultaneously buying and selling currencies. Here, the Canadian Dollar is the base currency while the Japanese Yen is the quote currency.

The Pros and Cons of Automated Trading Forex: Is It Right for You?

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result.

You will also need to consider the economic performance of the UK, China, and Australia because they have a direct impact on the currency pair’s price action. 81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

In 2021, the pair is expected to remain volatile due to ongoing Brexit negotiations and the impact of the COVID-19 pandemic on the UK and US economies. The currency pairs with the least changes in value tend to be the major currency pairs that are liquid and often involve larger, more developed https://1investing.in/ economies. This nourishes more trading volume and yields better price stability among the most liquid currency pairs. The higher the degree of currency volatility, the higher the level of market risk, and vice versa. Highly volatile currency pairs tend to have higher levels of market risk.

However, the desirability and strength of the AUD and the JPY have made the pair particularly attractive. It is an important indicator of changes in exchange rates, so traders and investors use it to assess risk. If, in a set time, the price changes dramatically and with large spreads, the volatility is high. The USD/JPY pair is known for its sensitivity to market sentiment and risk appetite. It is influenced by factors such as economic data from the US and Japan, monetary policy decisions by the Bank of Japan (BOJ), and geopolitical tensions in the region.