Forex Most Volatile Pairs

Forex Trading Explained

Before the advancement of the internet, Forex was initially mainly traded by hedge funds and banks. This is because Forex trading involves a lot of capital and thus could only be afforded by big banks, and hedge funds. The advancement of the internet has made it easier for individuals to actively trade Forex.

Trading Forex online is straightforward. However, it requires an individual to register with a brokerage firm. This is because the broker is the only way to have access to the financial markets. A brokerage firm is a company that links buyers and traders to the financial market. These financial markets are Forex, Stocks, Indices, bonds, Cryptocurrency, Commodities, forwards, and futures. There are lots of brokerage firms and each has its distinct qualities and elements. 

For instance, there are brokerage firms that specialize in a specific financial asset. Some brokers trade only Forex, and Stocks. While there are some that trade all the financial classes. The main aim is to register with a brokerage firm that meets your Trading strategy. 

Also, ensure to register with a reputable and regulated broker. This is to safeguard your funds and ensure that they meet up with the financial services promised. A financial regulatory body keeps the broker in check and ensures the safety of the trader. However, a regulated broker might be more expensive to maintain, but it is better to be safe than sorry. 

Trading with peace of mind is better than trading with the thought that your broker could one day mysteriously close down. A regulated broker cannot abscond with trader’s funds, this is because there are laws prohibiting such acts. Also, trading with a reputable broker provides more liquidity for assets. In the Financial sector, one of the problems faced by most traders is low liquidity. When a broker has low liquidity selling an asset becomes an issue. 

However, with a reputable broker, these issues are avoided. Your funds are secured, you are given access to high liquidity, and most importantly you trade with peace of mind.

Before signing up with a Forex broker, ensure that the Forex broker provides all the necessary Forex pairs. This is a very vital issue to pay attention to.

Let me explain in detail,

Some Forex brokers provide limited Forex pairs. Most Forex brokers provide mainly the Major Forex pairs, due to the pair’s popularity and high liquidity. However, this is not favorable for traders whose strategies fit into the other types of Forex pairs such as the Exotic pairs and the Minor pairs. 

Forex Pairs

The Forex market is a decentralized financial market that deals in the exchange of currencies. These currencies are exchanged based on the market rate which is greatly affected by the economy of the country. 

For example, when a trader speculates on the USD, this means the rate of the currency strongly depends on the economy of the United States. The same applies to the GBP, with the rate of the currency depending on the economy of the United Kingdom. 

To actively trade Forex, two currencies must be paired together, one being the quote currency and the other the base.

EUR/USD is an example of a currency pair. The first currency is known as the base currency while the second currency is referred to as the quote currency. The quote currency is utilized by traders to rate the base currency. The base currency is the transaction currency. So in this case, the Euro is the base and transaction currency, while the USD is the quote currency. 

Types of Forex Pairs

In Forex trading there are 3 main types of Forex pairs. They are the Major pairs, may not pairs, and the exotic pairs. 

Let’s explain them in detail,

Major Pairs

Major pairs are the most popular and the most actively traded pairs in the Forex industry. The major pairs are made up of currencies of the world’s strongest economies paired with US dollars. They are actively traded because they have high liquidity and are less volatile. 

These currency pairs include:

EUR/USD EURO TO US DOLLAR, this is the European Currency paired against the US dollars. 

CAD/USD CANADIAN DOLLAR TO US DOLLAR, this is the Canadian currency against the US dollars.

GBP/USD THE BRITISH POUND TO US DOLLAR, the United Kingdom pound is paired against the US dollar.

AUD/USD The Australian Dollars to US dollars, this is the Australian dollar being paired against the US dollars. 

USD/CHF The dollarSwizzy, this the Switzerland currency being quoted the US dollars. 

USD/JPY is mostly referred to as Japanese to Yen, this is the Japanese currency paired against the US dollars.

NZD/USD is mostly referred to as the Kiwi dollar, this is the New Zealand currency paired against the US dollar. 

Minor Pairs

The minor currency pairs are also actively traded and are the second most popular currency pairs in the Forex industry. These pairs are made up of one Major currency with another currency without the US dollar. That means a major currency is quoted against another major currency except for the US dollar. The Minor pairs are volatile, however, they are not the Forex most volatile pairs in the trading industry. They are low-liquidity pairs.

These currency pairs include:

EUR/GBP is mostly referred to as the Euro to Pounds. It is the European currency paired against the United Kingdom currency.

EUR/JPY is mostly referred to as the Euro to Yen. It is the European currency paired against the Japanese currency. 

GBP/JPY, mostly known as Pound to Yen, is the United Kingdom currency to the Japanese currency.

GBP/CAD, this currency pair is known as the Pound to the Canadian dollar, it is the United kingdom currency paired against the Canadian dollar.

CHF/JPY. Mostly known as Swizzy to Yen, it is the Switzerland currency paired against the Japanese Yen. 

EUR/AUD is the European currency paired against the Australian dollar mostly referred to as Euro to Australian dollars.

NZD/JPY is the Switzerland currency paired against the Japanese yen, it is known as Swizzy to Yen.

The above-mentioned pairs are the most popular minor pairs in the Forex trading industry. 

Exotic Pairs

The exotic pairs are forex parts that contain a currency from an emerging economy, and the USD currency. To break it down, an exotic currency pair offers traders two currencies made up of the USD and a currency from a country with a low economy. This gives rise to currencies from countries such as the Middle East, Africa, Asia, etc. 

Forex most popular exotic pairs include:

USD/HUF is the US Dollar to the Hungarian Forint. It is the currency of the United States and Hungary. 

USD/SEK, this is the US dollar to The Swedish Krona. It is made up of currencies from the United States, and Sweden.

USD/TRY this pair is made up of the United States currency and the Turkish currency. Popularly known as the Us Dollar to Turkish Lira.

USD/CZK is the United States currency paired against the Czech Republic currency. Popularly known as the US Dollar to Czech Krona.

USD/NOK is the US dollar to Norwegian Krone. It is made up of the United States currency and the Norway currency.

USD/MXN is the US dollar to Mexican Peso, it is made up of the Mexican currency and the United States currency. 

USD/ZAR is the Us Dollar paired against the South African currency. Popularly referred to as the US Dollar to South African Rand.

USD/THB is the US Dollar currency paired against the Thai Currency. It’s popularly known as the US Dollar to Thai Baht.

What is Volatility

Volatility in Forex is the level of change in the rate of a currency. 

Further explanation,

It is the rate at which the value or price of currency changes. The volatility of a currency is estimated by standard deviation and it illustrates how the price moves away from its mean. A volatile currency is bound to deviate regularly from its average price. Forex most volatile pairs have low liquidity. This means that the currency pairs have a wider range of moving in either direction or plunging into a substantial weekend gap. 

Forex Most Volatile Pairs

Forex most volatile pairs can be hard to determine. This is because market volatility can affect any of the pairs significantly. However, we have come up with the most volatile forex pairs in the trading industry. 

AUD/JPY

This is the Australian currency paired against the Japanese currency, popularly known as the Australian to Japanese Yen. This currency is noted as one of the Forex most volatile pairs because it is very sensitive to the modifications in market sentiments. Traders who are risk takers always gravitate towards the Australian Dollars. The Japanese Yen is a safe haven for most traders. Traders trade the Japanese Yen when they don’t want many losses. 

CAD/JPY

The Canadian Dollar and the Japanese Yen have different characteristics. The Canadian Dollar is highly affected by the price changes in Oil. This is because Canada’s economic growth comes from oil production. Since the inception of the pandemic, Volatility in Oil has been on the increase. Resulting in CAD pairs being highly volatile, for example, the CAD/JPY.

GBP/AUD

Since Brexit, the GBP/AUD has been on the rise. The Currency pair has recorded the highest intraday volatility among the GBP crosses. 

USD/MXN

The price changes in Oil have significantly affected the performance of the Mexican Pesos. Also, interest rates and geopolitical issues are other factors that have greatly affected the volatility of the currency pair. However, The Mexican Pesos are a startup market currency and also a liquid currency. 

USD/ZAR

South Africa is a major exporter of commodity goods. This is why the South African Rand is referred to as a commodity. The fluctuations of ZAR are due to the price instability of the commodity market. The ZAR currency can work better when it’s in a high-risk mode. 

USD/THB

Thai Baht is a startup currency that is gradually becoming popular in the financial market. It is partially liquid and its high volatility gives rise to more trading opportunities. The currency’s volatility was seen to increase since the beginning of the Pandemic. 

Least Forex Volatile Pairs

Now that we have looked at Forex most volatile pairs, let’s analyze the least volatile pairs in the Forex industry. The Major currency pairs are known to be the least volatile pairs in the Forex sector. This is because the pairs are actively traded globally, hence resulting in high liquidity. They are also made up of more stable economies that rarely have wide price fluctuations. 

Let’s analyze some of them,

EUR/CHF

The Swiss Franc is a stable currency with a stable economy. The currency is noted to be safe because the rate of the currency hardly changes. The only time the currency had a bit of price fluctuation was during the black swan event. The currency also seems to fluctuate occasionally during some events. 

USD/JPY

This is a currency pair containing two major stable currencies. The US dollar and the Japanese Yen are safe havens. The price fluctuations are limited, and it happens occasionally depending on the state of the market. However, when there is an increase in interest rates in the United States, the interest rate of the Japanese Yen remains low. 

Forex Most Liquid Pairs

DISPARITY BETWEEN TRADING CURRENCY PAIRS WITH HIGH VOLATILITY VS LOW VOLATILITY

What is the disparity between trading currency pairs with high volatility and currency pairs with low volatility?

We will explain this section by dividing the currency pairs into  3 major currency paths. 

Major Pairs

As earlier stated, the major currency pairs are pairs that are made up of currencies that belong to one stable economy paired against the US dollar. When an economy is stable it indicates the rate of the country’s currency will be stable. Just like the United States. The price of the USD is always stable because of its country’s stable economy, the same applies to the Euro, Pounds, Yen, etc. Trading these pairs will give rise to low volatility because of the country’s stable economy. Most traders prefer to trade the Major currency pairs because they provide more liquidity and fewer price swings. Examples include EUR/USD, GBP/USD, etc. 

Minor Pairs

These categories of currency pairs are also made up of currencies from stable economies. However, unlike the Major pairs, they do not include US dollars. This makes the currency pair a little bit volatile. However, the price does not swing high, and it is limited. Trading these types of currency pairs means that the rate could fluctuate but price changes will not be much. They include the EUR/GBP, which is the Euro to Pound.

Exotic Pairs

Exotic pairs are made up of one major currency and a currency from a country with an unstable economy. This category is where you find some highly volatile pairs. They are regarded as the Forex’s most volatile pairs. Trading these currency pairs is very risky and should be limited to just professional traders. However, these pairs give rise to higher profits due to their wide price swings. Trading a volatile pair is more rewarding if the market moves in your favor. It requires more risk because it involves a currency from an unstable economy. Example: AUD/JPY, USD/MXN.

In summary, Exotic pairs have more volatility compared to Minor and Major pairs. The Major pairs are less volatile and highly liquid. The Major Currency Pairs are actively traded and as such have high liquidity. This means they can be easily bought and sold without the fear of getting stuck with the currency. Currencies such as Euro, Swiss Franc, and British Pound have high liquidity. While currencies such as the South African Rand, Turkish Lira, and the South Korean Won have low liquidity. This is because these currencies are not actively traded. 

NOTE: Liquidity is the ability to buy and sell a currency without making a significant price movement. For instance, a market order to purchase $50,000 of EUR/USD will have no impact on the currency pair because of its high liquidity. But a $50,000 purchase of USD/TRY will have a significant impact on the currency pair. Also, high volatility pairs tend to have higher spreads. This means more expenses for the trader. 

How to Trade Forex Most Volatile Pairs

The best currency pair to trade is the one that best suits the trader’s trading strategy. A trader that is more into range trading should stay away from exotic pairs. The best pairs for range trading are major currency pairs and some minor pairs. Example: EUR/GBP, and EUR/CHF. 

However, for a trader that is more into trend-following, volatile pairs are the best pairs to trade. They could be Minor pairs, like the EUR/JPY, and GBP/JPY, or Exotic pairs like the USD/TRY, and the USD/ZAR. However, Major pairs can be traded, but the price swing has to be carefully analyzed. Ensure to choose the ones with high volatility. 

The risk a trader is willing to take is also a significant factor to consider. Although, trades can be carried out by trading any currency pair. However, for traders who can’t deal with many risks, it is advisable to trade less volatile pairs. For traders who have a high-risk appetite can comfortably trade volatile pairs. Most traders avoid exotic pairs because they can’t deal with high-risk trades. Irrespective of the negatives linked to trading volatile pairs, it’s still a good way of generating more profits. 

Popular Trading Strategies

There are lots of trading strategies that can be utilized in trading the Forex most volatile pairs. Let’s look at some popular trading strategies. 

BREAKOUT TRADING

This is the buying and selling of currencies when the rate of the currency breaks a prior support and resistance level. This trading strategy needs a strong technical and fundamental analysis. 

RANGE TRADING

This is the trading of a set range of support and resistance. A trader gains income from the highs and lows within the range. 

CARRY TRADING

This is the act of borrowing funds in a currency that has a low-interest rate and utilizing it in purchasing a more profitable currency

Why Traders Prefer Forex Most Volatile Pairs

Unlike the Major pairs and the Minor pairs, the Exotic pairs are not actively traded. However, traders with a high-risk appetite always gravitate toward volatile pairs. This is because the pairs provide more trading opportunities. 

Trading volatile pairs also offer higher profits. Professional traders know how to navigate the volatile market. They understand the high price swings and know how to navigate them. Also, due to the increasing economies, the probability of developing countries increasing their economic growth is high.

Trading Volatile pairs offer high-interest rates. In most emerging countries, the interest rates are higher than the interest rates of developing countries. This advantage makes trading the Forex most volatile pairs very attractive. 

Disadvantages of Trading Forex Most Volatile Pairs

The disadvantages of trading forex Volatile pairs range from Low liquidity, higher volatility, and high spreads. 

High Volatility

In a Forex market where there is high volatility, price swings swiftly. This leads to higher profits, however, it also leads to higher risks. 

Lower Liquidity

This means the Exotic pairs have a low trading force in the financial market. Compared to Major and Minor pairs, the Exotic pairs are not actively traded in the Forex sector.  

Forex Slippage

When there is high volatility and low liquidity, this could result in Forex slippage. Slippage occurs when a market order is carried out, or a stop loss order shuts a trade at a price different from the order.