What does the volatility of a Forex currency pair depend on?

Crosta

Trader
Sep 29, 2021
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The more liquid a forex currency pair is, the less volatile it is. The higher the supply and demand for a currency pair, the harder it is to push the overall price of that currency pair, keeping volatility low.

Conversely, if both supply and demand are low, the price movement of the forex currency pair may be more volatile, and therefore the volatility may be higher. This behavior is more common in less used currency pairs. As a result, these currency pairs are more volatile because their supply and demand are generally lower than those of larger, more commonly used currency pairs. A currency combination that is widely used and circulated is more stable and less volatile.

Markets can also fluctuate when they can suddenly fluctuate after major economic news. Major news has the power to affect and change prices, and sometimes even bigger and more popular currencies are heavily affected by these news events.

Since more volatile currency pairs have a wider range than less volatile ones, it is easy to assume that they are better pairs to trade. Because they move in a wider range, the potential gains appear to be greater than on more stable pairs.

That's true to an extent, though, as they're more exotic, less in demand, less liquid, and therefore quite risky.

Source: FX Cashback http://www.fxcashbackking.com