There is no doubt that the forex trading world moves at a fast pace, and the most interesting feature of forex trading is the volatile nature of currency pairs. For prop traders, volatility is considered one of the factors that bring about profitability through different types of trading such as scalping, day trading, or longer trading periods.
This article discusses the most volatile currency pairs that are loved by prop traders and what makes them special. Furthermore, it provides insight into the most traded Forex pairs in the forex world in comparison to the most volatile ones.
Volatile Pairs in Forex Trading
This refers to the amount by which a pair of currencies fluctuates over a period. A pair that is highly volatile can experience fluctuations ranging from 100 to 300 pips on a daily basis. This can be contrasted with another that experiences between 30 and 50 pips per day.
A number of factors determine volatility:
- News announcements
- Interest rate changes
- Political happenings
- The market sentiments
- Overlapping trading sessions
Normally, prop traders like to trade volatile pairs since they offer more profits, but at the same time pose higher risks.
Why Prop Traders Like Volatile Pairs
Profit goals are usually specified by prop firms during a short span of time. For meeting these goals, traders require pairs that have sufficient movement to yield profits.
Advantages of volatile pairs include:
- Greater trade opportunities
- Higher intraday movements
- Breakout capabilities
- Momentum trends
- Scalping and swing trade setups
On the other hand, traders should refrain from overtrading or leverage abuse, which could result in drawdowns due to fast price changes.
GBP/JPY – The Dragon Currency Pair
Among the volatile currency pairs in the forex market, GBP/JPY is a popular choice among professional prop traders.
text{Daily Movement of GBP/JPY} approx 150text{ to }300text{ pips}
The GBP/JPY is known for its volatility, combining the volatility of the British Pound and the sensitivity of the Japanese Yen to the market mood.
- Why Do Traders Love GBP/JPY?
- Large daily movement in the price
- Good for breakouts
- Sensitivity to London and Tokyo sessions
- Trend trading system works well
- Prop traders trade the pair using swing trading strategies.
XAU/USD – Gold vs Dollar
While not a traditional forex currency pair, XAU/USD is highly favored by professional traders due to its high volatility.
Gold is affected greatly by:
- US inflation figures
- Fed policy rates
- Geopolitical instabilities
- Uncertainty in the markets
The yellow metal can fluctuate by hundreds of pips in just a few hours, making it appealing to high-risk traders.
Advantages of Trading Gold
- High liquidity
- Strong intraday trends
- Breakout opportunities
- Great volatility during NY session
But gold trading may be tricky. Novice traders should keep their position sizes small while dealing with such a volatile asset.
GBP/USD – A Major Favourite Forex Pair
The GBP/USD is one of the majorly traded currency pairs in the foreign exchange market, and it is still one of the favourite pairs for funded trading.
GBP/USD is more liquid and volatile when the London and New York sessions overlap.
Why the GBP/USD Is Preferred
- High liquidity
- Narrow spreads
- Predictable technical setups
- Sizable movements after news releases
Professional traders usually combine GBP/USD with momentum swing trading strategies
EUR/JPY – Smooth & Explosive
EUR/JPY represents a middle ground of volatility and clearer price action. As opposed to GBP/JPY, this pairing usually tends to be smoother, making analysis easy.
Benefits of EUR/JPY
- Well-defined trends
- A smaller spread when compared with exotic pairs
- Good volatility during the European trading session
- Better technical construction
Many professional traders like EUR/JPY since it provides sufficient movements without being too wild.
GBP/NZD – The Most Explosive Pairing
GBP/NZD is renowned for its high volatility. This currency pairing has the potential to move by over 200 pips in one day of ordinary trading.
text{Average Daily Movement of GBP/NZD} > 200text{ pips}
Reasons Why Prop Traders Prefer GBP/NZD
- High volatility
- Breakout potential
- Trend trading friendly
Greater rewards relative to risks
The problem with using GBP/NZD is that its spread is wider than the major pairs. It is essential to factor in all expenses before opening a position.
USD/JPY – Stable Yet Volatile
USD/JPY is less volatile than GBP currency pairs but still popular due to its predictability and liquidity.
Why It Is Good for Prop Traders
- Spreads are low
- Technically clean pairs
- High responsiveness to US and Japanese economic news
- Suitable for novice traders
Funded traders typically trade USD/JPY for consistency, not volatility.
Exotic Currency Pairs and Their Pitfalls
Prop traders interested in exotic pairs might consider:
- USD/TRY
- USD/ZAR
- EUR/TRY
Such pairs tend to generate massive fluctuations, but they carry some downsides:
- Spreads are very high
- Liquidity is lower
- Movement is unpredictable
- Slippage is higher
Professional traders advise against trading exotic pairs without substantial experience.
Best Trading Sessions for Highly Volatile Currency Pairs
Volatility varies from one trading session to another.
London Trading Session
This session is characterized by intense trading action and the creation of trends. Currency pairs that have the GBP and EUR will exhibit increased activity during this session.
Common pairs include:
- GBP/USD
- EUR/USD
- GBP/JPY
New York Trading Session
This session sees high volatility in the USD pairs, especially when there are releases in the US economy.
Common pairs include:
- XAU/USD
- USD/JPY
- GBP/USD
London/New York Overlap Session
This session is marked by high liquidity and movement. Prop traders dedicate their entire sessions to this period.
Risk Management for Trading Volatile Pairs
While high volatility can result in fast gains, losses can occur equally quickly. Prop traders pay great attention to discipline and capital management.
Important guidelines include:
- Always use stop losses
- Never use excessive position sizes
- Avoid impulsive trades based on emotion
- Adhere to your trading plan
- Ensure appropriate risk-to-reward ratios
Most prop trading companies have stringent drawdown policies, so capital preservation is as critical as earning profits.
Selecting an Appropriate Volatile Pair
Every trader does not need to trade the same volatile pair because selection depends on:
- Trading style
- Risk appetite
- Session accessibility
- Experience
Some examples are:
- GBP/USD or XAU/USD for scalpers
- GBP/JPY or EUR/JPY for swing traders
- USD/JPY for beginner traders
Testing the performance of various pairs through demo trading accounts may help traders select an appropriate volatile pair.
Conclusion
Despite being risky, volatile forex pairs continue to be extremely appealing for prop traders due to numerous trading opportunities offered by them and their fast rate of price changes. Popular pairs in prop trading include GBP/JPY, GBP/USD, EUR/JPY, and GBP/NZD.
At the same time, volatility leads to increased risks, which require strict discipline and proper money management. It is not just about trading the market with maximum volatility; rather, the choice should match a trader's personality.
The knowledge of how the most actively traded forex pairs behave and swing trading techniques will be useful for prop traders when they want to make their trading efforts more consistent and gain long-term