Volatility is our number one enemy in the markets. And while some amount of it can actually work for us, volatility too high can ruin the whole day or even a week in cases too hard and too long. And of course when we stumble across volatility and volatile assets the first question that we ask ourselves is – where to run? What assets are not going to be subjected to this?
And the answer can be found if you dig deep enough.
For starts you need to determine whether it is a volatility of the couple itself or of the market as a whole? Read the news, look for the reports. This is going to help you drive the conclusion of the scale of the situation. If the market is volatile as a whole there is nowhere to run and nowhere to hide. All you can do is to just relax and not trade for some time.
But if the volatility and shakes can only be seen in one of the couple or one of the currencies, then you are in luck – you can look for something else to trade.
You are more likely to stumble upon shakes and rapid changes of the market in the unusual paring – the ones that the pros are calling exotic. Although other currencies are also known for the changes.
Look at the most volatile couples in the currency market.
The USD/ZAR, USD/KRW, USD/BRL and other emerging market currencies pairs can be highly volatile because of their low liquidity and because of the risks which are inherent in the conditions of emerging market economies. And you can also see that even those including safe havens can be open to some changes.
BUT!
There are some places that we can hide in.
For example, EUR/GBP, NZD/USD, USD/CHF and EUR/USD are the least volatile currency pairs. And their low volatility is attributed to their high liquidity, so you can see a direct correlation right there.
And of course volatility is nowhere to be found in such currency couple which are made up out of two safe haven, like USD/JPY and USD/CHF, for example.
But that is pretty much clear to us – exotic currency couples cannot leave their exotic status because they have low liquidity – no one is simply interested in trading them, so it is fair to say that unless you prefer trading exotic currencies, it is certain that you are safe from liquidity there.
It is more popular couples that really pose a threat and risk for us. But trading them, we just have to agree and accept – such is their flaw.
