Forex traders who want to maximize profits in a short period of time, especially through short-term trading strategies, look for high volatility currency pairs to trade.
In forex trading, volatility refers to the level of uncertainty or risk that is associated with the changes that happen in a currency’s exchange rate. A highly volatile currency means that its values can be spread out over a large range especially over a particular period of time. Simply put, a currency that is highly volatile will have its value change suddenly and dramatically over a short period in either direction. On the other hand, the value of a currency with low volatility will hardly move, or if it does, it will only be within a limited range.
A currency pair’s volatility is based on the discrepancy between the average price and the closing price. If the standard deviation is high then it’s a sign that the currency pair has a high volatility. A good forex trading strategy is dependent on how well you analyze and interpret market conditions alongside standard deviations. This combination allows the trader to plot out the best move to make a profit.
The forex market can be affected by various factors, conditions and specific timings and these can determine how volatile a currency pair gets. For example, the London forex market is considered the most volatile in the world. One of the reasons it is volatile is because of the huge impact other countries and economies make on its value. This is reflected in various currency pairs that involve the GBP like the GBP/JPY and the GBP/CHF pairs. These pairs can exhibit up to 140 pips on average. These are the currency pairs that traders who are looking for quick profits trade in. You might also wish to these BinaryOptionsExpert swiss brokers
Another highly volatile currency pair is the US Dollar and the Euro. The volatility here is mainly contributed by the Euro because its value is affected by the economic state of many different countries – the ones that share the currency. The overlap in the trading times of the US forex session and the London session also result in higher volatility because trading volume increases.
Many experts actually suggest that the times when currency trading overlaps are the best times to trade. This is due to the higher volume of transactions at this time which makes the markets more liquid. The best currency pairs for these sessions include the GBP/USD, USD/CAD, USD/CHF and EUR/USD. At these times you can normally expect to see a range of more than 100 pips every day.
There are other factors that affect the volatility of a currency pair; it’s not just economics or timing. The best way to determine good high volatility currency pairs is to look at trending data. You will then be able to compare this with economic changes to just how volatile a currency is in relation to its peers.
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