The volatility is one of the most important features of the Forex market, and despite the fact that you can play against us, it can also be our best ally. For this reason, today we review how we can take advantage of this factor.
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What is volatility in Forex?
In general, we can define volatility as the speed at which prices move, either of an asset, commodity, index, currency, etc
This concept is directly linked to the market liquidity, which refers to the volume of transactions.
The more liquid is a market, the less volatility there is. If you have less liquidity, exactly the opposite occurs.
Forex is the largest market in the world, with a daily volume that exceeds $ 6 trillion. For this reason, it is a little volatile, if we talk about how difficult it is to see a percentage change is important in a currency.
However, the currency itself that tend to show drastic changes and sudden, a product of his close relations with the geopolitical events,
Observe a variation of 2-4% on a currency like the euro, that is one of the strongest, it takes several weeks, and even months in a normal situation.
Example of the volatility in the EUR-USD, Forex market. Source: TradingView.
Earn money with these variations it would be a difficult task if you do not have enough capital, and it does not use a broker.
In addition to that it is unlikely to move much percentage. Imagine you have only $ 500 of capital. If you spend it all on buy euros, hoping that this currency increased by 4%, then when this happens, and you manage to change it back for dollars, you will have gained just $20.
For luck of the traders, this is not the case when you use a broker that offers leverage. And what is this? Let’s see below:
Take advantage of the fluctuations of the currencies using leverage
It is really surprising the approach that led to the Internet between the people and the investments.
Until a short time ago, and still to the belief of some people, the financial markets were only within the reach of few.
Today, this thought cannot be further from the reality.
Hundreds of brokers, we offer a variety of instruments to take advantage of the fluctuations of different assets, currencies, cryptocurrencies, stocks, commodities, etc, from the comfort of our home.
And best of all, we offer you the option to increase our capacity purchase with instant credit, better known as leverage.
With this tool, we can open positions in the market several times bigger than our capital, in some cases hundreds of times.
Example to understand the leverage
A broker that offers a maximum leverage of 1:100 or 100x, that means that it multiplies your buying power by 100 times.
Thus, an initial deposit of just $100, you can open positions up to $10,000. How surprising, isn’t it?
Of course, as not everything is pink, this can be a double-edged sword, so should be used with great caution, learning how to use it, preferably with a demo account.
With leverage you can win more than your initial capital in just one operation, but probably also have to put it all at risk.
To avoid this, the trading platforms allow you to place stops for loss, with which you can control the risk. Generally, it is not recommended to risk more than 3% per operation.
The most important thing of this tool is that you can take advantage of currency movements of Forex trading, even when volatility is low.
Using the same example that I placed half of this publication, with a capital of $500, you could get the same $20, by risking just a small fraction of your deposit, which could be $5 – $10 – $20 risk, this will depend on where you’ve placed the taking of losses.
If you are interested to know about the shots of profits and losses, better known as the take profit and stop loss, stay on the lookout for our publications section Forex Market.