It’s a widely known fact that financial markets are volatile places to invest your money. The absurd market movements on daily, monthly or annual basis cause a stir in the market that leaves participants to either come hell or high water. However, it’s the volatility of the financial markets that make the actors generate a profit that they seek from their trading. It’s only in the times of volatility that a trader is able to pull maximum profit out the market and have the desired outcome.
Out of all other markets, forex trading holds the top place with the biggest number of transactions taking place every day. Therefore, the liquidity and purchases of the foreign exchange are largest in this kind of trading. As volatility plays a vital role in all kinds of trading, foreign exchange is one typical kind of trading that endures the most volatile times and has far-reaching effects of this phenomenon on its trading.
Since forex trading is buying and selling of the currency, the price fluctuation of different currencies has been the reason of profit and loss in the trade. Recently, the price of US Dollar saw a major shift and went quite high without many intervals of time. But, the year 2018 is expected to witness a change and have volatility returning to the forex market, leading towards better forex trading.
What is volatility
Volatility is the instability or the amount of risk that lingers on each trade because of the continuous change in the prices of the currency. Higher volatility refers to the continuous changes in large ranges of values spreading without many intervals, which means that sharp changes are coming in shorter spans of time.
Volatility can also be a measuring tool for the fluctuations, or also to determine the price currency pairs. The traders in the forex market are supposed to learn how to manage volatility for success in trading with profit.
As we have studied the effects of volatility on forex trade, Fuad Ahmed collects some facts for the year 2018, that are going to create a big difference in the arena of forex trading in the current year.
The volatility in the foreign exchange has fallen sharply in the current year when the record levels of pool or liquidity that are provided by central banks pacified and left fewer options for traders to make a profit out of the trade deals.
However, the fall in dollar price this year increased as the US Treasury Secretary was seen embracing the weak dollar price followed by his signing the central bank’s beginning to dial back stimulus, this instance has fired up the currency market.
Some of the electronic trading platforms are also reporting about the steep increase in the fixed trading volumes.
The settlers of trade in the forex market mention that the amount of average traded volume has now risen to $1.805 trillion daily since January, which is 24% higher than the start of the previous year and 15.6 from the last month.
The current year, according to different analysts, as Fuad Ahmed investigates into the matters, the impacts of volatility have been severe. The last two years have been giving a yearly rise in price on an average, however, the last month broke all the past trends and succeeded in showing the effects of volatility within the first month of the year, giving hope for the next months to come.
The rise in the volatility was not noticed at the beginning of the previous year as much as its visible in the year of 2018. The prices of forex were quite stable when the world was undergoing some great risks, they remained the same as North Korea, a major rival of US and capitalism tested the missiles. It also remained unaffected as Trump showed his disapproval of this step of North Korea. It didn’t change in the times of weather change when the hurricanes hit the US.
All these events were hinting at a change in the market but didn’t give the expected results. Currency prices are solely dependent on different geopolitical factors in the world, which also functions as the main stimulant of price change and causes to stir volatility in the market. For many traders, the lack of volatility is a major put off for their trading decisions. It becomes a disappointment for them when the market doesn’t respond to the events as per the expectations and only keeps going up, against their whims. This phenomenon seems unnatural and artificial to them as financial markets are prone to react to socioeconomic and political events taking place in the world.
The lack of volatility where was bringing stagnation in the forex market, it was giving a boost to cryptocurrency market which was getting accepted at different exchanges like CME and CBOE, until they started crumbling down from high to low to stability.
Nevertheless, since the marketing is now moving in a positive direction, Fuad Ahmed brings to his readers the report for rising volatility.
Rise in Volatility
The force behind causing the greatest volatility happens to be the policies of the central banks and investment banks investment in trading. This makes prices take sharp wider swings and make big amounts of money in the name of profit.
The month of January witnessed the beginning of a new phase parallel to the start of a new year when dollar depreciated from the previous price. In the turn of events, the next thing to happen alongside the dollar depreciation was banks speculating about the tightening of monetary policies in the Euro Zone.
However, it has been noted that the prime currency of Euro Zone that is Euro has not been very volatile and the most traded currency pair of the world Euro/USD didn’t undergo a major shift in its long-term average even after the recent rise.
At the beginning of the year, when all the financial markets were enduring a change, the stocks and options went high and low, however, the currencies didn’t move as big as it was expected from them and remained on almost on the same position.
But in the current year when the central banks are releasing balance sheets giving a rise to the expectation of inflation, the rise in currency volatility is also inevitable. This move of central banks as per many analysts will have a great impact on the currency market.
This year the foreign exchange market is going to see volatility that the giants of trading have been forecasting for years. Now where the inflation is triggering volatility in the market, it’s inducing the fear of interest hike in the among the investors. But, they are more welcoming towards the volatility as an increase in its means, increase in profit returns and this year 2018 seems to be the year of extreme volatility.
In a conventional setting, the sharp rise and fall in the prices are not looked as a positive change, but the forex market differs in this sense. The shift in prices of currency and continuous change of it is what leads to trader having the right amount of profit that he seeks from his trade. The year 2018 apparently seems to be bringing the same profit for investors that they have been looking forward to having for many years.