A guide to volatility trading, its causes, and the most volatile markets

Graphic of trading data chart
Rebecca Cattlin
By :  ,  Former Senior Financial Writer

Markets are always on the move, but the speed and size of price changes is what creates excitement (and risk) for traders. So, let’s take a look at the trading opportunities with volatility and which markets experience the highest levels of volatility.

What is market volatility?

Market volatility is the rate at which an asset’s price increases or decreases over a period of time. It’s used to describe short-term, rapid price movements. While most financial markets experience intraday movements, volatility is defined by the speed and degree of change.

Volatility is seen as an indicator of the levels of fear on the market. When there is uncertainty, price movements can become erratic and unpredictable as even the smallest piece of news can cause outsized price movements.

What causes market volatility?

Volatility is caused by increased uncertainty, whether that’s market-wide, in a particular asset class, or a single company’s stock. But there are plenty of factors that can unnerve markets, including:

  • Politics – the decisions made by governments and political leaders on trade agreements, policy and legislation can cause strong reactions among traders and investors. As an extreme example, when Russia invaded Ukraine it sent shockwaves through markets as supply chain fears caused commodity prices to soar
  • Economic data – when the economy is doing well, markets tend to react favorably. When data releases show a negative market performance or miss market expectations, it can cause volatility. Examples include such jobs reports, inflation, consumer spending, and GDP
  • Industry news – specific companies, indices, or commodities can be impacted by industry-specific events, such as extreme weather conditions, strikes, and supply-chain disruptions. For example, the global chip shortage caused volatility across the shares of semiconductor producers and the auto-manufacturers, as companies were forced to delay orders for over 6 months
  • Company news – corporate actions, earnings reports, and even rumors can cause volatility in share prices. The larger moves are caused by an announcement differing from the expectations, and ‘surprising’ markets

Another key driver of volatility is liquidity. The more traders and investors on the market, willing to buy and sell an asset, the less likely it is that a single transaction will cause a large price move. So, less liquid markets are usually more volatile as prices can change drastically.

How is market volatility measured?

Market volatility is measured using standard deviations. This metric takes a market’s annualized returns over a given period and subtracts it from the current market price to see any variances.

Volatility is most commonly analyzed using Bollinger Bands. This technical indicator is comprised of a simple moving average, and two bands placed a standard deviation above and below the SMA. Bollinger Bands enable traders to see a smoothed-out version of an asset’s price history.

The level of volatility is measured by the width of the bands. The further apart the bands are from the SMA, the more volatile the price has been within the range. When a market experiencing comparatively low volatility, the Bollinger Bands appear closer together.

How to spot trading opportunities in high volatility

Day traders tend to prefer high volatility because it creates more opportunities for short-term speculation. When large swings occur, it increases the chance for bigger profits in a smaller timeframe. But it does also increase the risks, as a market can move against you just as quickly.

That’s why it’s important to understand your risk appetite before you even start to think about trading volatility. If you’re uncomfortable in high-risk scenarios, then trading volatile markets probably isn’t for you. But, if you’re interested in the trading opportunities from the fast-paced changes, then the appropriate trading strategy and risk management plan can help you harness the market changes.

Most volatile markets

Volatility is relative. Price changes that are considered a highly volatile period for one asset class, might be fairly tame for another. Broadly speaking, some of the most volatile markets you can trade are:

  1. Cryptocurrencies
  2. Commodities
  3. Exotic currency pairs

Please note that you can only trade currency pairs through FOREX.com.


Cryptocurrencies are often regarded as the most volatile market. Stellar, Ripple, Ethereum, and Bitcoin are among the most volatile cryptocurrencies. In the first two weeks of March 2022 alone, Bitcoin lost 40% of its value.

Crypto market volatility is largely driven by news and the opinions of influencers in the crypto space, such as Elon Musk. The crypto market is known for its unpredictable nature, which is what makes it exciting for some traders but daunting for others.


Commodities are typically more volatile than currency and equity markets due to the lower levels of liquidity or trading volume than other asset classes, as well as the constant exposure to weather events and other production issues that might affect supply and demand.

As we’ve seen recently, commodities are also extremely susceptible to volatility around geopolitical events due to the location of reserves being specific to different regions. Russia’s position as one of the largest exporters of oil, natural gas and basic metals meant that commodity prices increased dramatically following the country’s invasion of Ukraine.

Typically, energies are the most volatile commodities, while agriculturals tend to experience less dramatic price swings. Please also note the following – past performance are not necessarily indicative of future results.


%Range (on 31 March 2022)

US Crude


Gas oil


UK Crude


Carbon Emissions


Natural gas










London Wheat


Non-major currency pairs

The forex market is often called volatile, and although currency prices do change extremely rapidly, they don’t have the erratic price moves typically associated with volatility. This is because forex is a highly liquid market, so price change in smaller increments due to the high volumes of traders willing to buy and sell.

Most major currencies only trade in a range of a few percent within a trading day. But, non-major currency pairs experience lower liquidity, which means the difference between intraday highs and lows tends to be wider. We see this when looking at the percentage range between different major, cross and exotic pairs.

Currency pair


%Range (on 31 March 2022)































Most FX volatility occurs around major data releases, such as interest rate decisions, retail sales, inflation, employment figures and industrial production.

Least volatile markets

All markets experience volatility to some degree, but the markets with fewer price swings are bonds, t-bills and cash in savings. Safe havens, like gold and silver, are often regarded as hedges against market instability, but as commodities they can also experience price swings.

It’s important to be aware of the context of your trades, and understand the past performance is no guarantee of future price movements.

Trading leveraged products in a volatile market

When you trade volatile markets using leverage products, your potential for profit or loss is greater. For example, an unleveraged position on Apple would see a $1 profit or loss for every point the market moves. But a leveraged position, say of 10:1, would mean that same point move would equal a $10 profit or loss.

In periods of volatility, the market can move by large amounts, which could see your gains magnified. But your losses could stack up too. This is why you should always manage your leveraged trades with take-profit orders and stop-losses, as these allow you to set predetermined exit levels that will execute automatically at a certain level of profit or loss.

Please note, placing contingent Orders does not necessarily limit your losses to the expected amount, as market conditions may prevent you from executing such orders.

Related tags: Volatility RIsk Inflation

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