Forex Volatility

Forex Volatility

Forex Volatility. Forex volatility could relate to the margin requirements of a trading account, mainly when retail traders use mini accounts or accounts with micro-lots. Do not forget that many Forex brokers have introduced larger margins to protect the retail trader from high Forex volatility periods during the trading sessions as they have improved the spreads on the major pairs. As a result, we have seen a sharp growth in Forex volatility in the last months, especially during the London session for the major teams, including cable and euro as the most volatile pairs.

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Although the argument brought up by the forex brokers of the margin is to protect the interest of the retail trader, one could argue on the opposite as being too tight sometimes and can too quickly stop you during normal market noise, which occurs very often during the main trading sessions, especially pre news and pre-major news releases.

Of course, volatility is a direct result of this market noise. As I have already said, one could close out open positions without even noticing this via a margin call from the broker. Just because the volatility would have increased, and, of course, there would be a significant movement in the open trade. Volatility is generated from greater demand and supply movements.

Forex volatility has nothing to do with trends or market direction and does not indicate a specific price movement. Instead, it relates more to the volumes traded for the pair in a particular period.

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