FX markets are susceptible to a range of factors which affect their volatility, and many traders look to tailor their strategies to capitalize on the most volatile currency pairs.
Currency volatility[1], often measured by calculating the standard deviation or variance of currency price movements, gives traders an idea of how much a currency might move relative to its average over a given time period. Traders can also gauge volatility by looking at a currency pair’s average true range or by looking at range as percent of spot.
The higher the level of currency volatility, the higher the degree of risk, and vice versa. Volatility and risk are usually used as interchangeable terms.Different currency pairs have different levels of volatility on average.
Some traders enjoy the higher potential rewards that come with trading volatile currency pairs. Although, this increased potential reward does present a greater risk, so traders should consider reducing their position sizes[2] when trading highly volatile currency pairs.
What are the most volatile currency pairs?
The most volatile major currency pairs are:
Other major currency pairs, like EUR/USD[3], USD/JPY[4], GBP/USD[5] and USD/CHF[6], are generally more liquid and less volatile as a result. That said, emerging market currency pairs, such as USD/ZAR[7], USD/TRY[8] and USD/MXN[9], can clock some of the highest volatility readings.
MOST VOLATILE CURRENCY PAIRS
Majors - AUD/JPY, NZD/JPY, AUD/USD[10], CAD/JPY, GBP/AUD[11]
Emerging Markets - USD/ZAR, USD/TRY, USD/MXN
Aside from relatively low liquidity, emerging market currencies tend to be highly volatile in particular due to inherent risk underpinning emerging market economies. The chart below gives an example of how volatile emerging market
