The most volatile currency pairs and how to trade them

What is the definition of Forex volatility?

When trading forex, there are currency pairs whose value is continuously fluctuating. It is high at one place and low at another. In the currency market, this is volatility. It is when the value of a currency pair fluctuates in the forex market.

Factors that affect volatility

Several factors can affect forex volatility, either directly or indirectly. The first is liquidity; the more liquidity a currency pair has, the lower the volatility. When more people are trading a currency pair, its value remains constant.

Since fewer persons are trading the currency pair, there is more volatility. This is because market participants tend to indicate different prices for buying it. As a result, the market experiences shooting and falling prices.

Political factors are such that political unrest negatively impacts the stock market prices. When there is peace, the economy has a better chance of growing positively.

Economic factors such as the interest rates increase or decrease. Investors invest in a country based on interest rates. A high interest chases investors away because fewer people are borrowing. It has an impact on GDP, which influence the currency value.

Is Forex volatility good in forex?

In forex, the prices go up or down which, is the essence of forex trading. It would be pointless without the highs and lows of the currency market. Volatility has both a beneficial and counteractive impact on the forex market tradition.

Trading a currency pair with high volatility is risky, but it pays off handsomely. Most forex traders prefer a stable currency pair. Others prefer a volatile forex pair since it makes a good profit when the market moves upward.

In general, volatility in forex trading is not a bad thing. However, this does not negate the inherent risk of trading a volatile pair. Seasoned forex traders recommend a volatile forex pair only if you have trading experience.

It provides traders with the potential to earn from their trading. However, forex traders should have a proper trading plan in place before trading a risky pair. They should also have a requisite stop-loss order.

Which is the most volatile currency pairs ?

In forex, some currency pairs experience more volatility than others. The most volatile currency pairs in forex are;

The British Pound VS the New Zealand Dollar   GBP/NZD

This currency pair is one of the most volatile pairs. It moves an average of 170 pips a day and doubles this value on other days. It is due to the political factors in Britain and the agro-economic factors in New Zealand. 

The British Pound VS the Australian Dollar        GBP/AUD

This currency pair has seen its prices go up and down in the last decade. The volatility of this pair is accounted to the monetary policies in Britain by the Bank of Britain. Export and import are some of the main revenues in Australia. It plays a role in the value of the Australian dollar in forex. 

The Australian Dollar VS the US Dollar            AUD/USD

The AUD/USD pair has its fair share of market spikes. This pair is commonly referred to as the Aussie after the Australian dollar. Its prices tend to be affected by commodity prices traded with other countries. The interest rates imposed by the federal bank also contributes to the volatility. 

The Australian Dollar VS the Japanese Yen      AUD/JPY

This currency pair is the most volatile in 2021. It is because of the incredible role that crude oil plays in Japan. Japan imports a high percentage of the energy it uses. As the prices of oil rise and fall, it impacts the Japanese yen. The fall in oil prices strengthens the Japanese yen against the Australian dollar

The Euro VS the Australian Dollar                 EUR/AUD

This pair has a couple of factors that have caused high volatility. The Euro is affected by different economies from the countries in the European Union. These countries have different GDPs, interest rates and economic policies. 

It makes it hard to make an accurate analysis for this pair. Any big announcements from European Union countries will undoubtedly influence the Euro. The Australian dollar gets affected by interest rates and commodities prices.

The Australian dollar and the Japanese yen (AUD/JPY) have been the most volatile pair. The reason is due to the economic downturn of 2007/2008. Before this time, the Australian dollar was performing well in the forex market.

The Australian Reserve Bank has been managing interest rates since then. The AUD is volatile as a result of increasing and decreasing the rates, and other economic issues. The Japanese yen at times faces unstable prices. This is due to internal political and economic factors.

What causes their market to be so volatile?

It’s easy to see more exotic pairs when you look at the data above. Exotic currencies are currencies that are coming up like the New Zealand Dollar. Since they are new to the market and have less liquidity, they are more volatile than the other pairings.

Exotic currencies do not have the same level of popularity as major currencies. As a result, they do not receive as much traffic, resulting in low liquidity.

They are volatile because of the economic factors that influence the country’s economy. The interest rates imposed by central banks are one of these economic influences. 

Australia and New Zealand, thrive on agricultural products and raw minerals. The cost of these items fluctuates with time. Any updated prices will have an immediate impact on the commodity prices.

Stronger currencies, such as the US dollar, the British pound, and the Euro, also have a role in volatility. The announcements from the Bank of Britain or the federal bank.

Japan makes monthly financial announcements. These events lead to the fluctuation of prices that include the Japanese Yen.

Which pairs are the least volatile?

The most liquid currency pairs are those with the least volatility. The key currencies in which the majority of traders transact in large amounts. They include the EUR/USD, EUR/GBP, GBP/USD, and the USD/JPY.

The countries behind these currencies have the highest GDP. That is one reason why they are commonly traded. Since many forex traders are exchanging a forex currency, its price is constant in the forex market.

How do you calculate volatility?

There is one formula that traders use to calculate volatility. It is through determining the standard deviation of a price over a given period. Before you begin the calculation, the first step is to choose the period you wish to calculate the volatility.

This period might be within any timeframe, and the data should be consistent across all times.

The first step is to list the closing prices of a currency pair for the desired timeframe. The closing prices will be the basis for the calculations. The standard deviation can get calculated easily using the variance.

The second step is to calculate the mean of the closing prices by adding them. Divide the total by the number of days that you selected the data. Consider four days with closing prices of 10,20,30, and 40. Add them up: 10+20+30+40=100, and 100 divided by 4 days equals 25.

Take your obtained mean and subtract it from the closing prices. Assume you have the following data: 10, 20, 30, 40. Let’s say it’s 40-25…10-25.

Remove the negative by squaring them. Add the squares and divide by the total number of data points or the days you selected the data.

The answer is 115 in our situation. To get the standard deviation, take the square root of this number. In this case, the price volatility over the four days was 10.72.

What do you use to measure volatility?

There are instruments designed to help traders understand the volatility of a currency pair. They get plotted on the charts such that forex traders can assess the volatility information live.

The volatility of a currency can sometimes be a tool to predict market direction. Traders use them and other tactics to determine whether a trend is about to emerge. Traders utilize a variety of indicators, including:

Bollinger bands

When it comes to volatility, these are the finest tools to utilize. They are three lines that follow the price movement. If you want to find the volatility, you can calculate it using standard deviation. They form the upper, lower and centre lines. They each stand for the standard deviation of the price within the trading time frame. The upper line and the lower line will act as the standard deviations. Where some equal units above or below the moving average.

Such that the Bollinger bands can give the deviations by contracting and expanding. High volatility in the prices shows the Bollinger bands widen from each other. They will tighten or close together if their vitality is poor.

The moving average 

It is a technical indicator a forex trader uses to predict the direction of the price of a forex pair. There are different types of moving averages. The most commonly known in forex is the exponential moving average. There is also the simple moving average and the weighted moving average.

In an uptrend, the moving average moves below the security price. Whereas in a downtrend, it climbs above it. The moving average can reveal the market price volatility. This is through calculating the distance between the moving average and the price.

The lower the market volatility, the closer the moving average is to the price. However, if the moving average is a distance from the price, the market is extremely volatile.

The Donchian channel

It is a technique that calculates volatility by plotting the highest and lowest prices of the currency pair on a chart. They consist of three lines, with the upper line indicating the highest point. The bottom line represents the lowest price, the middle line represents the average price.

They work by calculating the highest and lowest points during a specified period. The highest price gets identified within that period. It provides the upper line when plotted on a chart.

The lower line follows the same concept, with the lowest price at a chosen period plotted. The middle line shows the average of the upper and the lower prices of the chosen period.

The period can be months, weeks, days, hours or minutes. The donchian channel shows the volatility of a currency pair through how the channel behaves.

Low volatility gets indicated by a narrow channel. A wide channel signals a high level of volatility.

What distinguishes Bollinger bands and the donchian channel is how they get derived. The highest and lowest prices in the market help to calculate the donchian channels. While calculating the standard deviation yields the Bollinger bands.

Average true range

Another technique to quantify volatility is to use the average true range. It operates by performing a series of calculations to determine the period’s average true range. The true range is from comparing the high and low prices of days from the selected time.

According to the person who identified it, it uses 14 periods to provide a reliable signal. It gets represented as a line at the bottom of the chart. A spike in the line indicates a high level of volatility. There is low volatility if the line is stable.

The average true range assists traders in determining when to enter or exit a market.The price charts use all of these tools if used correctly, are very effective.

How do you trade the volatile pairs?

Trading volatile pairs is a difficult task that demands planning and caution. Traders have been thrown off the market in the past by the unpredictability of volatile pair markets. Many traders avoid trading volatile forex pairs because of this.

When trading risky pairs, you should keep the following guidelines in mind:

Choose a currency pair that you want to exchange. This selection should be based on an investigation of the background of the forex pair. Some traders have successfully traded volatile pairs, so choose a currency pair that has better reviews. This selection should be based on a thorough investigation of the currency pair. Some traders have had success trading volatile currency pairs.

Research is key when trading a volatile pair. Before you start trading, make sure you have a good understanding of technical and fundamental analysis. They assist in deciding on trading techniques to employ to generate regular returns.

Make a trading plan that you can employ. When trading, currency pairs involve different trading tactics. It can take a long time to establish a unique approach, but it will save you money in the long term. 

Before going live, experiment with the demo account. The demo account simulates live trading, but the outcomes are not identical to live to trade. The practice is worthwhile since it psychologically prepares you for any difficulty.

The demo account will show you how to utilize your approach and adapt it if anything changes. It is beneficial to practice your talents before putting them to use. Confidence and emotional trading play a role as well.

Trading a volatile forex pair like the GBP/NZD requires concentration without using emotion. Traders always fail because greed and panic are present when they trade. Volatile pairs can surprise anyone, this is why learning to control emotional trading is critical.

It’s a good idea to use risk management to keep any losses to a minimum. When trading these currency pairings, use the proper stop loss. Risk management involves placing a target profit to prevent any losses. It also stops you from trading more than you can handle.

Make use of forex trading tools such as trend and volatility forex indicators. Another suggestion is to start with a small, controllable position. This is especially true when trading a risky currency combination for the first time.

If you want to make a profitable deal, you must go through these steps. The live market is not like trading with the demo account because of the drastic changes that could end in massive losses. If the above suggestions get adopted, it could potentially result in a large profit.

When is the currency market most volatile?

When the markets are open, the currency market is quite volatile. It occurs when all four markets have just opened. When prices are erratic, it’s because traders are buying and selling currencies in response to news announcements.

When the Sydney market opens, the AUD/USD will become volatile. It is because that is where the majority of its traders are. Each volatile pair has a specific market that, when opened, has higher volatility than other times of the day.

When the Federal Reserve Board and the Bank of England make pronouncements, the market becomes quite volatile. Interest rate changes could have a knock-on effect on other currencies.

What time is the forex market most volatile?

When the markets are open, the currency market is quite volatile. It occurs when all four markets have just opened. When prices are volatile, it’s because traders are actively buying and selling currencies. This is in response to news announcements at the opening market.

When the Sydney market opens, a specific pair, such as the AUD/USD, is volatile. It is because that is where the majority of traders congregate. Each volatile currency pair has a market that, when opened, has higher volatility than other times of the day.

When the Federal Reserve Board and the Bank of England make announcements, the market becomes volatile. They are the financial institutions that govern interests rates of major currencies in the forex market. Interest rate changes could have a knock-on effect on other currencies.

Political news, such as changes in Brexit, can cause the forex market to react, increasing volatility. There’s also political news from other countries. The economic calendar is significant for traders since it records all of a country’s economic events.

Investors keep an eye on the economic calendar to see what changes get implemented in the future. These occasions are accompanied by a change in forex prices. Other times when news affects a pair’s volatility is when a stock’s primary stakeholders reveal any fresh developments.


Forex volatility has a variety of effects on trading operations. Volatility causes even experienced traders to lose money from time to time. There are a lot of people that earn by trading volatile currencies. Volatile currencies are simple to trade if you have prior experience and knowledge. Many traders are hesitant to trade the most volatile pairs. Therefore for those who want to give it a chance, resources help traders get the knowledge they need to start.

Volatile pairs can be profitable, forex pairs if a trader has figured out the approach to use. Beginner traders, on the other hand, should start with a popular currency pair with low volatility.