As a beginner forex trader, you should know how to identify volatile currency pairs and drivers of volatility to safely trade volatile currency pairs. Liquidity can be described as the ability to buy or sell a certain currency without causing a significant market move. For example, an order to buy 50 million EUR/USD will hardly move this highly liquid currency pair, while it could have a notable impact on an exotic currency pair such as USD/TRY. Less liquid currency pairs also tend to have a widespread, which increases the costs of trading for the forex trader. Exotic currency pairs will generally see higher volatility, while major currency pairs tend to be less volatile.

In contrast, some emerging market countries’ currencies are highly volatile since they are affected by global demand and supply and local policy changes. The Russian ruble, Brazilian real, Mexican, and Argentine peso are these currencies. One of the reasons for their low volatility is a positive correlation most volatile currency pairs between two currencies that often leads to less volatility. Both referred to as safe-haven currencies, the US dollar and the Swiss franc tend to move in the same direction against other currencies upon the same market conditions. This is the reason why USD/CHF is one of the least volatile currency pairs.

Thus, the major currency pairs are generally less volatile than the emerging market currency pairs. Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading.

Currency pairs of combinations that are widely used and in circulation are more stable and less volatile. In contrast, New Zealand heavily depends on commodity exports, and its currency is also affected by the prices of agricultural products like milk, eggs, meat, and timber. As a result, the NZD/JPY market is experiencing large price fluctuations, which makes it one of the most volatile pairs in forex. This highly liquid minor forex pair represents the exchange rate of the New Zealand dollar against the Japanese yen. As one of the world’s major reserve currencies and a stable currency with large trading volumes, the Japanese yen moves slowly.

• There are several methods to ensure more security and return on investment while you trade Forex volatility.
• This pair includes the Australian dollar and Japanese yen and is considered one of the fast-moving forex pairs.
• A higher ATR indicates greater volatility, while a lower ATR suggests relatively stable market conditions.
• Trading in Forex goes 24 h a day, which means traders
  can always check up with the market and make trading operations.
• Gold is a significant export of South Africa, and the commodity’s price on the world market is in US dollars, meaning the cost of gold depends on the value of the US Dollar.

Their supply and demand in the market are low, so their volatility is high. Exotic currency pairs are a combination of emerging market currency pairs and currencies from advanced economies. Highly volatile currency pairs do imply trading risks, yet provide greater profit opportunities. Knowing the most volatile Forex pairs will help you set up a fitting strategy to benefit most from market movements. Also remember that the volatility of currency pairs in
Forex noticeably increases when the American and European trading sessions
coincide.

Shortly after his inauguration, the Brazilian real experienced a sharp fall against the US dollar. With the current president Lula da Silva, previously convicted of money laundering, Brazil also faces economic challenges, so volatility in the USD/BRL pair is likely to continue. The powerful Australian extractive industry struggles because of a slowdown in the Chinese market. Due to the unstable trade relationship between the US and China, there has been a decline in Australian exports to China, and this is a problem for Australian manufacturers and exporters. Trading against the stable pound sterling, the AUD is experiencing volatility.

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Exotic currency pairs are the most volatile and moving, such as USD/SEK, USD/BRL, and USD/DKK. Cross rates related to GBP, such as GBP/NZD, GBP/AUD, GBP/JPY, and GBP/CAD, are the currency pairs with high volatility. On average, this cross-pairs move for more than 200 points (pips) per day. The most volatile currency pair in 2022 was USD/RUB because of the Russian economy during the war situation. EU payments for Russian pipeline gas greatly impact the rising currency. Additionally, the most volatile currency pairs in 2022 are USD/BRL, USD/ZAR, and USD/SEK (see Table below).

Integrating technical analysis with volatility considerations is a powerful approach for making informed trading decisions during news-driven market conditions. Technical analysis involves analyzing historical price data, chart patterns, and indicators to identify potential entry and exit points. By combining technical analysis with an awareness of market volatility, traders can gain a deeper understanding of price behavior and make more accurate predictions.

Strategies for trading the most volatile Forex pairs

The US Dollar against the South African Rand is an exotic currency pair because South Africa is an emerging economy. The price of the pair often deviates drastically because a gold-dependent economy backs the ZAR. The price of South African gold moves based on the change in the price of  USD because its gold is priced in USD on the world market.

Research in South Africa indicates that more volatile currency pairs are usually more profitable since their prices fluctuate more rapidly. However, trading in the most fluctuating currency can also increase the risk. In addition, extremely volatile currency pairs are usually less liquid than the more stable currency pairs. Hence a well-planned strategy for risk management and trading is required. Forex traders must be careful of deviations in any currency pairs they are trading and all other currency pairs and correlations for effective risk management. Positive or negative correlations of currency pairs give the traders an overview and a clear picture of the direction they should be trading and avoiding.

Forex Volatility

As a forex trader, you must know about volatility and ways to measure the currency’s price volatility. This is one of the technical indicators that help measure relative volatility with other financial instruments. This indicator applies to almost all types of financial products, be it equities, futures, or currency markets, for that matter.

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As we mentioned at the start of this article, volatility can happen at almost any time to any currency. However, since there are pairs that are historically more volatile than others, traders can look for the telltale signs of volatility. This is whether you want to trade volatile currencies or whether you want to avoid them. In addition to historical trends, staying on top of the news and big announcements can be key to tracking volatility. While it’s a good idea to avoid trading during high volatility in order to minimize risk, trading during volatility can also bring back windfall returns.

Following the separation, the South allied with America and the North allied with Russia. As a result, the economic disparities of capitalism and communism started to become apparent and can still be seen on the peninsula today. Before the initiation of recognized currencies, trade and barter used to be the norm. To illustrate the non-constant nature of volatility, let’s look at the Forex Volatility Calculator. We should note that, by definition, volatility tends to change over time and is not a constant. Traders can also look at implied volatility readings, which reflect the level of expected volatility derived from options.

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The unpredictable and rapid price movements characteristic of these pairs demand a careful approach to position sizing and risk management. In conclusion, the significance of selecting the right currency pairs for a successful forex trading journey cannot be overstated. Your choices profoundly influence both the profitability and risk management of your trades. The strategies and insights provided in this guide are the keys to boosting your profits and managing risks wisely. Remember that the selection of the best forex pairs to trade is your compass, and informed decisions are your map. The GBP/JPY cross pits two of the largest economies and powerful currencies against one another.