Monitoring Currency Pair Volatility

canstockphoto10634000There are many factors that must be taken into account when deciding which currency pairs to start trading. A lot will depend on how experienced a forex trader you are, but one aspect that must always be taken into account when trading currencies is volatility.

Volatility is essentially the amount of variation a trading price experiences over a set period of time. A certain degree is required to make it possible to profit from forex investments, but too much can introduce a lot of risk into your trading plan. It is important to monitor currency pair volatility to improve your chances of success.

Major and Minor Currency Pairs

Major currency pairings generally offer higher levels of volatility which is why they are the most popular options. They are effected by global events more than the majority of minor pairs, reacting to economic news and political situations. Due to their importance they are much easier to monitor as well.

Historical data can be used in an attempt to predict the volatility of both major and minor currency pairs. Gains and losses in pips give a good indication of volatility. Minor currency pairs usually aren’t as volatile, and can be a safer option if you’re looking to hedge investments.

Volatility Monitoring Tools

Aside from simply keeping up to date with all the global and financial news, there are a few tools that can be used to monitor currency pair volatility. Economic calendars are useful to show when important, upcoming events that will effect currency price are happening, along with historical charts to get a good idea of pairs’ previous performances.

Forex calculators demonstrate the most up to date rates for many currencies, taking into account leverage, position size stop loss/take profit and more factors. They are an essential tool for all traders.

Using Volatility to Your Advantage

Volatility might sound like a worrying prospect, but it is actually advantageous for forex traders. When creating a trading plan or strategy you should include the process of monitoring volatility in it. Those traders willing to take the most risk will look for highly volatile ones, while safe traders will seek out less.

This year currency volatility has been surging, especially with events such as the Brexit, providing many profitable opportunities. Many will have profited from events like this, having planned for them in advance, although some may have lost out. Monitor currency pair volatility and use it to your trading advantage.

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