Currency Volatility and How to Use It To Your Advantage

What Is Currency Volatility?

When there is a level of uncertainty about a currency’s value and the size of changes in that value, it can be referred to as currency volatility. A huge range of values can be spanned by a currency’s price when the climate is highly volatile. The relative weakness or strength of a particular currency against another type of currency can substantially alter, causing market uncertainty.

For example: over a 30-day period, the United States dollar exchange rate for the GBP (British pound) started out at 0.770 and fluctuated down to as low as 0.765 and as high as 0.790 – finally ending at just about 0.780.

As a way to avoid currency fluctuation and exchange rate risks, certain marketplaces have found a way to supply consumers with exchange rates that are frequently more favorable than what brokers or banks can provide. So, using the example above, whereas one dollar would only have purchased 0.765 British pounds at the lowest point, at its highest point, 0.790 British pounds could have been purchased for one American dollar.

How Can Consumers Use Currency Volatility?

Let’s say that the United States dollar is going strong. Now let’s say that there is an American company that imports from the UK. Assuming that the company is billed in GBP (British pounds), that company is going to be paying less. Here’s another example: a consumer is traveling to Britain or purchasing goods from the UK. For their money, they are going to be getting a better value. Of course, just the opposite is true for anyone traveling to the United States or buying USD and selling GBP. They are doomed to pay more in this particular situation with this kind of exchange rate effect.

And here’s a little tip: increased currency volatilities are frequently contributed to by political events all over the world. It’s always a good strategy to follow up on the news and plan, so you can protect your business or investment when exposed to currency risk.

Currency, Volatility, and the Market

Frequently, you will hear people on social media, radio, and TV chat about terms such as “currency exposure” and “volatility”. They love to talk up the relative weakness or strength of major currencies throughout the world. But how can one individual’s day-to-day life be affected by these seemingly confusing concepts?

Again, smart investor will keep their finger on the pulse of major world currencies and take advantage of their volatility. At times, all it takes is a watchful eye and the ability to trade quickly. But informed consumers and investors will make the absolute most of any periods of uncertainty in today’s market and currency values by pouncing during volatile times, and becoming something of volatility traders themselves. Try to do some research and learn more about the best volatility trading strategies relevant to your particular market.