The most volatile markets

In the second part of this article on volatility trading we take a close look at the most volatile markets. The first part of this article, "A guide to volatility trading", ended on a list of typically volatile markets: cryptocurrencies, commodities, exotic currency pairs and high-volatility stocks. Let's take a closer look at these markets and their respective volatility.

Cryptocurrencies

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. It is also worth noting that the market for crypto-assets trades during the weekend. During the weekend the other markets are closed, professionals are often absent and no major economic data is published. In short there is an information and reference vacuum. The major price moves in cryptos tend to open during the weekend, when this asset class is trading in an information vacuum.

Commodities

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.

These are the major commodities and their %Range as at 31 March 2022. Typically, energies are the most volatile commodities, while agriculturals tend to experience less dramatic price swings.

1. US Crude (7,30%)
2. Gas oil (6,75%)
3. UK Crude (5,73%)
4. Carbon Emissions (3,29%)
5. Natural gas (1,78%)
6. Coffee (1,32%)
7. Corn (1,17%)
8. Soybean (0,99%)
9. Cotton (0,70%)
10. London Wheat (0,58%)

Trade all these commodities in this free trading demo. You can either trade futures or CFDs in the demo.

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 the most 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.

These are the volatile forex pairs, their category and their %Range as at 31 March 2022.

1. NOK/JPY (Exotic, 1,85%)
2. CAD/NOK (Exotic, 1,20%)
3. EUR/JPY (Cross, 1,06%)
4. GBP/AUD (Cross, 0,72%)
5. AUD/CAD (Cross, 0,66%)
6. AUD/CHF (Cross, 0,63%)
7. GBP/NZD (Cross, 0,57%)
8. USD/CAD (Major, 0,35%)
9. EUR/USD (Major, 0,32%)
10. GBP/USD (Major, 0,29%)

Trade all these forex pairs in this free trading demo. You can either trade Forex futures or Forex in the demo.

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

High-volatility stocks

For the most part, volatility isn’t something that investors pay attention to when it comes to choosing stocks. The shorter-term fluctuations of the market are of little concern to someone who’s going to hold shares for years. But, for short-term traders – like swing and day traders – volatility is the cornerstone of a good trading strategy.

Most stocks experience a degree of volatility around key events – such as earnings – but remain relatively stable over time when compared to the likes of cryptos or currencies. Blue-chip stocks and bellwethers of the economy typically experience the least amount of volatility, while more speculative and ‘trending’ stocks see larger intra-day changes. We just have to look at meme stocks like GameStop and AMC to see that stocks can be volatile under the right circumstances.

To find high-volatility stocks, most traders use the ‘beta’ metric, which looks at how a stock moves compared to a benchmark – normally the S&P 500, which has a beta of 1.0. Stocks that have a beta higher than 1.0 are more volatile than the market average. However, it is a lagging indicator as it’s based on historical data. Looking at the constituents of the S&P 500 High Beta Index – which measures the performance of the 100 companies that are the most sensitive to changes in market returns – we can see that some of the most volatile stocks (as of February 2022) are:

1. SolarEdge Technologies
2. Teradyne
3. Monolithic Power Systems
4. Enphase Energy
5. Applied Materials
6. NVIDIA
7. Penn National Gaming
8. Lam Research
9. Tesla
10. Etsy

This free trading demo allows you to trade all these stocks in real-time

When we compare the rate of change of these companies to blue-chip stocks – such as Amazon, Apple and Microsoft – or bellwether companies – such as Barclays, Vodafone and GlaxoSmithKline – we can see the rate of change is much greater for high beta stocks. These are some stocks and their %Range as at 31 March 2022.

1. SolarEdge Technologies (6,88%)
2. Monolithic Power Systems (5,27%)
3. Applied Materials (4,55%)
4. Enphase Energy (4,04%)
5. Teradyne (3,58%)
6. Amazon (2,07%)
7. Apple (1,63%)
8. Vodafone (1,45%)
9. Microsoft (1,39%)
10. GlaxoSmithKline (0,77%)

This free trading demo allows you to trade all these stocks in real-time

Trading volatility with the VIX

The CBOE Volatility Index – more commonly known as the VIX or fear index, tracks the market’s expectations of changes to the S&P 500 in real time. It’s used to measure – and take a position on – the market’s expectations of volatility. The VIX is expressed as a percentage, which fluctuates like any other oscillator. Readings below 12 indicate a low volatility environment, between 12 and 20 indicates normal levels of volatility, and any readings above 20 are seen as a signal of high volatility.

Taking a position on the VIX can give a direct exposure to market sentiment and provide insights into key turning points in the market. When the VIX is high, it’s usually a sign that the market is about to have a bullish run, and when the VIX is low, it’s taken as a bullish indicator.

You can trade VIX Futures with thise free trading demo

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