Currency Pairs That Define Risk: the Most Volatile in Forex

Forex trading can become a real roller coaster, especially when dealing with volatile currency pairs.

These pairs swing wildly, big gains but big risks.

Let's break this down so you can understand which pairs are risk and why they're so volatile.

What Makes a Currency Pair Volatile?

Currency volatility is the heartbeat of the forex market. Some currencies breathe steady, others spike up and down because of external factors.

Volatility is how much a currency moves in a period.

Some of the reasons for volatility are:

• Economic uncertainty: When a country has political unrest or economic instability, its currency goes haywire.
• Interest rate changes: Central bank decisions can cause big moves. For example, when the U.S. Federal Reserve changes interest rates, the USD moves big.
• Market sentiment: Traders’ moods can cause sudden spikes or dips.

Most Volatile Currency Pairs

Not all currency pairs are the same. Below are some of the riskiest and most volatile Forex pairs you’ll see:

1. GBP/JPY (British Pound/Japanese Yen)

This pair is called a "dragon" in the forex world. It’s haywire because the British pound is sensitive to economic news and the Japanese yen reacts to global risk sentiment.

• Why so volatile? The economies of the UK and Japan are very different which creates bigger price movements.

2. USD/TRY (U.S. Dollar/Turkish Lira)

This pair is always in the news for its wild swings. Turkey’s political and economic issues make the lira move big.

• Tip: If you’re trading this pair, watch out for Turkish inflation rates - they’re a big driver of volatility.

3. AUD/USD (Australian Dollar/U.S. Dollar)

The Australian dollar is linked to commodities, especially gold and iron ore. If commodity prices go up or down, this pair will move fast.

• Fact: When gold prices rise, AUD/USD goes up.

4. EUR/TRY (Euro/Turkish Lira)

Another pair affected by Turkey but also dependent on the Eurozone’s stability. Less popular than USD/TRY but equally risky.

Comparing Volatility Across Pairs

Let’s put some numbers behind the volatility. Below is a table comparing average daily price ranges for popular volatile pairs:

Why Do Traders Love These Pairs?

You might wonder why anyone would trade such risky pairs. It’s simple: the higher the risk, the higher the reward.

If a pair moves 200 pips in a day, there’s a chance for big profits. But here’s the catch - losses can pile up just as quickly.

Should You Trade Volatile Pairs?

That depends on your risk appetite. If you are one of those who enjoys high-risk trading and can take losses, then these pairs might work for you.

But if you prefer safer options, then less volatile pairs like EUR/USD or USD/CHF will be good for you.

Pro Tip: Practice trading these pairs in a demo account before using real money. It's just great to learn how they behave without actually risking cash.

Tips to Trade in Highly Volatile Currency Pairs

Trading around volatile currency pairs is not for the weak at heart. Large price swings can yield hefty returns, just as they create heavy losses.

Having a good trading strategy and a clear understanding of the tools that you have at your disposal will help you through this high-risk arena.

The following are some keys to better navigate the mayhem when trading volatile pairs:.

Use Tight Stop-Loss Orders

A stop-loss order acts as your safety net. When a trade goes against you, the stop-loss ensures you don’t lose more than you’re comfortable with.

For volatile pairs, this is a must-have tool. Set it wisely, keeping enough room for natural price fluctuations.

Keep an Eye on Economic Calendars

Volatile pairs often react sharply to scheduled events like interest rate decisions or employment reports.

Check the economic calendar daily to know when big moves might occur. For example, pairs like GBP/JPY or USD/TRY can swing widely during central bank announcements.

Start Small

If you’re just beginning, trade small positions. This minimizes your risk while allowing you to learn how volatile pairs behave.

With greater confidence, you can increase your trade sizes over time.

How to Avoid Over-Leveraging

Leverage may be very tempting because it gives you a big boost in buying power and potential profits.

But this also means losses will balloon up.

Trade volatile pairs with low leverage to avoid getting your account wiped out by the wild price swings.

Conclusion

If volatile currency pairs are anything to relate to, that would be fire; exciting, yet dangerous.

They mean risk in forex trading, presenting huge opportunities for profit, perhaps alongside the possibility of great loss.

If you decide to trade them, arm yourself with knowledge, strategies, and a healthy respect for the risks involved.

In my opinion, beginners should start with less risky pairs and build experience. Once you’ve mastered the basics, take on the challenge of trading more volatile pairs.

Remember: In forex, patience and preparation are your best tools.