Forex Volatility

Understand forex volatility, implied volatility, and how leverage amplifies risk and profit. Learn about volatility with Bloomberg Educated Investor.

Narrator
Bloomberg Educated Investor is brought to you by dbFX from Deutsche Bank.

Carol Biaggi (HOST) :

Volatility is cyclical, hard to predict, and can differ depending on the currency pairs you’re trading.
To capture profit, you’ll need to look at what’s referred to as implied volatility.

Demetri Papacostas (Bloomberg FX specialist):

 It is an estimation of the returns that one can expect in a particular currency pair. Implied volatility is a very eloquent figure that the market kind of spews out, and it’s eloquent because it’s not determined by any one individual or any one institution; it’s derived from the trades that you see in the market.
It encompasses the market’s anxiety about a coming event that could be a political event or a financial situation that is unraveling.

Carol Biaggi (HOST) :

You can leverage your profits by understanding how volatility can alter the currency playing field.

Bilal Hafeez (Chief Currency Strategist, Deutsche Bank):

When you use leverage, you need to have a really good sense of volatility in the online market.

The Mexican Peso, the Turkish Lira, or the Australian Dollar are much more volatile currencies.
You have to make sure your leverage levels are lower because otherwise, the volatility day-to-day will be so much larger than what you could manage.

Demetri Papacostas (Bloomberg FX specialist):

If the volatility in the Euro for the three months is X, this implies that the Euro will move this much in any given day, this much in the next three months, and so on.
On a technical basis, you would look at it and say, Okay, how many standard deviations has this gone away from the mean?

Bilal Hafeez (Chief Currency Strategist, Deutsche Bank):

It depends on the nature of your trade. Is it because you believe a new trend is forming? Then volatility would be good because then you’ll be catching, capturing very large moves day to day, and that will give you positive returns over time.

Carol Biaggi (Host)

Traders should be aware that a bet on volatility is risky business. It can be your best friend or your worst enemy.

Thanks for watching Bloomberg The Educated Investor. I’m Carol Biaggi.

Narrator
Bloomberg Educated Investor is brought to you by dbFX from Deutsche Bank.