George Charles A_ Garcia#13

Ver traducción

What is volatility clustering and GARCH models in forex?

Volatility clustering is the observed phenomenon where high-volatility periods are followed by more high-volatility, and low by low. GARCH (Generalized Autoregressive Conditional Heteroskedasticity) models are statistical tools that forecast volatility based on this property. In forex, GARCH models help estimate future risk, set position sizes, and price options. For example, if EUR/USD volatility has spiked, GARCH predicts persistence, guiding traders to adjust exposure. Institutions use GARCH for risk forecasting and portfolio optimization. While powerful, GARCH assumes past patterns predict future behavior, which can fail in black swan events. Retail traders may use GARCH-inspired volatility indicators to align stops and sizes with changing risk conditions.