The Return of Volatility and What it means for Forex Brokers

Volatility

“Volatility.”

With global equities markets in free fall and the VIX or volatility index at 7-year highs, the trading world is in a complete panic. Major currency pairs are trading in ranges that we have not seen since the January 15 black swan event. Some of these currency pairs are moving as much as 3-4% like USD/JPY and EUR/USD. The fear and volatility back in the market might be just what the doctor ordered for Forex Brokers. During the slower summer months, Forex Brokers are usually reporting lower revenues and reduced trading volumes.  For these events to take place in August is probably a welcome sign for many brokers.

With the Chinese market still in free-fall and with many experts always looking at China as overvalued this part of the volatility equation won’t be answered anytime soon. The other major issue facing markets is trying to forecast when the Federal Reserve will eventually raise interest rates. It was factored into the markets that this could have been as early as this September, but with the market chaos, this thinking has been thrown out the window. This means that the volatility is most likely to continue for the coming weeks.

While the positive side of more volatility means increased trading, it also means increased risk for Forex Brokers. Look for Forex Brokers to reduce leverage levels especially on exotic pairs that have seen significant moves over the pasts few trading sessions.

With these wild moves Brokers that CFDs especially Index trading should see a dramatic increase in volume as well. There are also those brokers that offer binary options trading in the different indices that will get a lot of attention.