Why are stocks more volatile than FX?
What is it that causes stocks and indeces to move 5% or more in a day, when currencies seem to move a maximum of 1% in a day? Is the lower volatility due to governments stabilising their own currencies if they see it move too much?
Answers
1130 points
sundarkambam answered 9 months ago …
See the link http://www.hereinmaine.com/currency-trading/28937.php
Although currency prices in the FX market may be volatile, they generally repeat themselves in relatively predictable cycles, creating trends. The strong trends that foreign currencies develop are a significant advantage for traders who use the correct "technical" methods.
Unlike stocks, currencies rarely spend much time in tight trading ranges and have the tendency to develop strong trends. Over 80% of volume is speculative in nature and, as a result, the market frequently overshoots and then corrects itself. As a technically-trained trader, you can easily identify new trends and breakouts, which provide for multiple opportunities to enter and exit positions.
The trade group whom I interact have really good success in this Forex market.
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2703 points
MNSL answered 9 months ago …
In the stock market you get too many players with too many new instruments. There are speculators and some manipulators as well. In addition unlike those days most investors and institutions no longer invest and they trade. This includes the commercial banks. It is comprised of making of bets in instruments. Therefore we see more volatility in the stock market today. Further there is no government control in the stock market.
In Forex market there are government controls. For example some countries very often buy and sell their currencies to stabilize currency market. In addition we can see currency trend very clearly. Recently everybody was able to identify weakness of US Dollar. So accordingly market players adjust their trading.
1786 points
ChaosNantuko answered 8 months ago …
While the other answers are good, i don't think thats the real reason.
There are two reasons;
a) governments try and stabilize currencies, because big currency fluctuations and unpredictable-ness make it harder for businesses to plan ahead, and
b) People who trade forex are frequently leveraged, up to 100:1. This means their stops are a LOT closer to the current price. This causes all the support and resistance lines to be a lot closer to the current price, which means it changes direction after a shorter move then your standard stock. I believe thats the true reason forex is less volatile then stocks. (Although once leverage is takin into account, i'd say forex is more volatile in its own way)
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