If you are serious about making money in the world of Forex you have to understand volatility. Volatility is used to measure how prices fluctuate over a certain block of time – usually tied to how rapidly a market value changes in the world of foreign exchange. Think of this as the “standard deviation of returns”, for example.
Understanding volatility – and deciding whether or not you want to trade less volatile or more volatile pairs on a regular basis – is a huge piece of the success puzzle in Forex investing.
The least volatile forex currency pairs are CHF pairs, like EURCHF, AUDCHF and USDCHF. This is due to the CHF being a safe haven currency, meaning it’s hedged against volatility. This causes very low volatility and makes the CHF pairs very hard to trade.
Which Forex Pairs are the Least Volatile?
The least volatile Forex currency pairs today may not necessarily be the least volatile Forex currency pairs next year (or even next week) – though there has been some real consistency in the Forex market over the last decade or so.
As a general rule of a you can expect the USD/CHF, EUR/CHF, USD/EUR, AUD/CHF, and EUR/CAD currency pairs to be the least volatile on the market at any given time.
These are some of the major currencies in the world (especially when you’re talking about the US dollar (USD) and the euro (EUR)) and they just don’t have a lot of variation in their price from year-to-year.
Sure, there’s always some movement (inflation, economic conditions, market factors, etc. all have an impact on these major currencies). But you’re not going to see the same kind of wild variations in value that you’d find in more emerging markets or “lesser” currencies.
For example, stack the USD/EUR currency pair up against the AUD/JPY currency pair and you’ll see a night and day difference in overall volatility.
Why You Should Avoid the Least Volatile Forex Pairs
A lot of newbie Forex traders want to jump right into the mix by trading currency pairs that they understand, usually currencies that they are most familiar with.
It’s not at all uncommon for new traders to start moving USD/EUR currency pairs because of their familiarity, their safety, and the faith that they have in these currencies.
That’s not usually the way to making a fortune in Forex, though.
Sure, the USD/EUR currency pair will be a lot steadier and a lot more consistent – but that lack of volatility means that there’s a lot less opportunity to make a mountain of money on major market moves.
You need that volatility when you are trading Forex.
Without that kind of volatility – without these currency pairs moving in relation to one another (sometimes extremely) – you just aren’t ever going to be able to generate real wealth.
The stability of the USD/EUR currency pair actually hinders your ability to make money in Forex!
On the flip side of things, though, a high volatility pair – like the AUD/JPY currency pair (the most volatile currency pair in 2021) – has tremendous potential on an almost daily basis to make real money when it is traded.
The value of the AUD is almost exactly inversely related to the value of the JPY. Trade this correctly according to global economic trends and it’s possible to bank a lot more money than you ever have made trading USD/EUR pairs exclusively.
Are Low Volatility Forex Pairs Easier to Trade?
In a way, low volatility Forex pairs are in fact easier to trade – but only because the risk of your trade going belly up is significantly decreased.
If you aren’t necessarily interested in making life-changing amounts of money in Forex, maybe some well-timed USD/EUR trades are the way to go.
You won’t be risking a whole lot because of the stability of the low volatility Forex pairs, but you don’t have a lot of upside in these kinds of trades because of that lack of risk (and that lack of volatility), either.
Of course, you have to remember that every currency has the potential to become volatile – even if only for a short amount of time.
Traders in Forex that tried to “set and forget” their market positions might discover that Black Swan events cause tremendous amount of volatility in their otherwise stable Forex pairs.
This volatility could present opportunities to make a mountain of money in a very short amount of time – or it could wipe these traders not anticipating volatility to get wiped out in the blink of an eye.
If you want to trade Forex on easy mode it’s important to look for Forex correlation pairs. These currencies have either a positive or negative relationship between one another.
The USD/EUR pair we’ve been highlighting are a correlating pair. This basically means that if the value of the US dollar goes down the euro is likely to go down to the same level at the same time. If the value of the dollar goes up the euro is going to follow it up at the same rate, too.
These might not be the “sexiest” Forex trades to make, but beginners that are just getting their feet wet – or traders that don’t have a tremendous amount of risk tolerance – will find these correlated pairs a lot easier to make than non-correlated trades.
At the end of the day, the Forex market is filled top to bottom with all kinds of irregularities and volatility (sometimes to a surprising degree).
Unlike the stock market where you can make trades and then sort of ignore your stock for months or even years, the Forex market demands that you keep your finger on the pulse as soon as you have locked in positions.
Take your eye off of the ball even for a short while (and even with low volatility correlated pairs) and you could find yourself in an unpleasant situation faster than you ever thought possible!
In Conclusion – Which Forex Pairs Are The Least Volatile?
In summary, the Swiss Franc (CHF) currency pairs are the least volatile of all currency pairs. The Swiss Franc is the least volatile of all major currencies because Switzerland has one of the lowest unemployment rates in the world (3%) and an extremely stable banking system.
Switzerland also has a well-educated populace, low public debt, and wealthy private citizens. The consumer confidence rate in Switzerland is quite high as well.
The Euro – specifically the EUR/CHF pair – is the next least volatile currency pair. The Euro stays stable because it is pegged to a basket of currencies and not just one specific country which has its ups and downs.
I hope this answers your question – if you have any further questions or thoughts about the volatility of forex pairs, please do leave a comment down below.