Zachary Robert R_ Rivera

View translation

What is the difference between volatility and risk in forex trading?

Volatility refers to the price fluctuation of a currency pair, indicating how much the price moves within a specific timeframe. Risk, however, involves the potential for loss based on position size, leverage, and market exposure. For example, EUR/USD may exhibit high volatility on a news day, but the risk depends on the trader’s exposure to that volatility. Institutions often use volatility-adjusted measures like Value-at-Risk (VaR) to quantify potential losses based on price movements. Retail traders can use volatility indicators like ATR (Average True Range) to adjust position sizes accordingly. Benefits: understanding the difference helps traders manage expectations—volatility can present opportunities, but risk management turns those opportunities into sustainable profits.