What is volatility in forex?
Volatility in forex refers to the degree of variation in a currency’s exchange rate over a certain period of time. It measures the rate at which the price of a currency changes, indicating the level of risk or uncertainty in the forex market.
High volatility signifies larger price fluctuations, while low volatility indicates more stable price movements. Traders often use volatility as a key factor in assessing potential risks and rewards when making trading decisions.
Understanding and managing volatility is crucial for forex traders to effectively navigate the market and make informed trading choices.
Example of volatility in forex
Let’s consider the EUR/USD pair. If the exchange rate suddenly jumps from 1.1500 to 1.1700 within a short period, this indicates high volatility.
Such rapid and unpredictable price changes can be caused by various factors such as economic data releases, geopolitical events, or unexpected central bank announcements, impacting traders and investors involved in forex trading.