Forex Market Historical Volatility -Research (2000-2013)
This is a research of the most traded pairs in the Forex market. The data is corresponding to a wide time frame beginning on the first day of the millennium (1/1/2000) and ending in August 2013. The total time frame covers about 13.5 years.
- Data: Daily data for 13.5 years
- Sample: EUR/USD | USD/JPY | USD/CAD | USD/CHF | GBP/USD | NZD/USD | AUD/USD
- Timeframe: Between January 2000 and August 2013.
Measuring Historical Volatility
For measuring the historical volatility of the Forex market, two methods are used which are based on the Average True Range (ATR).
What is the Average True Range (ATR)?
The Average True Range (ATR) is an indicator developed by J. Welles Wilder to measure market volatility. {Book, “New Concepts in Technical Trading Systems”, 1978}
The True Range according to Wilder can be measured using two main methods:
■ 1-Method: Current High minus the Current Low
■ 2-Method: Current High minus the Previous Close
Our Variation Model to Measure Volatility
To measure volatility we are using two methods similar to ATR:
1) Intraday Volatility
■ Intraday Volatility (%) = {(Intraday High – Intraday Low) / Intraday Low}%
2) Daily Volatility
■ Daily Volatility (%) = {(Current Daily High – Previous Daily Low) / Previous Daily Low}%
Forming our Sample to Measure Forex Volatility
Our research sample includes 7 major Forex Pairs.
The Most Traded Forex Currencies
The US Dollar is involved in more than 80% of all Foreign Exchange transactions. These are the most traded currencies in the world:
Market share of the most-traded Forex Currencies:
- US Dollar (USD), 80% of the total volume
- Euro (EUR), 37% of the total volume
- Japanese yen (JPY), 20% of the total volume
- British Pound (GBP), 16% of the total volume
- Swiss Franc (CHF), 6% of the total volume
- Australian Dollar (AUD), 5 % of the total volume
- Canadian Dollar (CAD), 4% of the total volume
- Swedish krona (SEK) 2.3% of the total volume
- Hong Kong Dollar (HKD) 1.9% of the total volume
- Norwegian Krone (NOK) 1.4% of the total volume
Research Focuses on the 7 Forex Majors
As the above currencies are traded against each other we can spot the most liquid Forex currency pairs. Liquidity means tight spreads and lower transactional costs. As an outcome, highly liquid Forex pairs attract more scalpers and arbitrage traders, who provide even more liquidity to the system. Here are the seven liquid Forex pairs:
1) EUR/USD | 2) USD/JPY | 3) USD/CAD | 4) USD/CHF | 5) GBP/USD | 6) NZD/USD | 7) AUD/USD
Forex Volatility Research Results
In the following table, we can see the average historical volatility of the 7 major Forex pairs. The data concerns the period 2010 (January) - 2013 (August)
Here are all the Results of FxPros.net Research:
CURRENCY PAIR | INTRADAY VOLATILITY | DAILY VOLATILITY | AVERAGE VOLUME (million USD) |
EURUSD | 1.07% | 1.08% | 574,928 |
GBPUSD | 0.96% | 0.96% | 329,586 |
AUDUSD | 1.32% | 1.33% | 249,204 |
NZDUSD | 1.44% | 1.45% | 228,864 |
USDJPY | 1.09% | 1.09% | 576,820 |
USDCAD | 0.94% | 0.93% | 274,622 |
USDCHF | 1.16% | 1.15% | 409,022 |
Average Volatility | 1.140% | 1.141% |
The results of the analysis are divided into 3 main periods: 2000-2004, 2005-2009, and 2010-2013.
■ Forex Market Historical Volatility
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