What causes large volatilty in the carry trades? | Forex Factory

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What causes large volatilty in the carry trades?

  • #1
  • First Post: Mar 7, 2009 7:55am Mar 7, 2009 7:55am
Hi,

I'm a newbie and would like to ask something that has been bugging my mind.

Why are the GBPJPY pair the most volatile pair in the market? I know for one thing that this is a carry trade pair, but in the forum, I've found this answer accidentally when searching for ATR.

Quote
The reason why the GBPJPY throws a lot of pips each day is because you need a lot of margin to buy/sell the lead currency (GBP) and get little return on the secondary currency (JPY). This is the same reason why EURGBP seems to "go nowhere". If you look at the percentage returns per pip multiplied by the ATR, it's probably the same as EURUSD or any other highly traded cross. Raw pips mean nothing if the return per pip is low.

The poster bluebuddha is no longer available/active and I would like to know whether the above statement is true or not, and I'd appreciate if anybody could give me a specific calculation/logic on how this situation can happen.

Thanks.

Marcel
  • #2
  • Mar 7, 2009 10:24am Mar 7, 2009 10:24am
Quoting marcelnyo
Why are the GBPJPY pair the most volatile pair in the market?
It's not. Check this table.

http://www.thefxmarkets.com/fxvolatility/

AUD and JPY are both have high volatility and high negative correlation putting AUDJPY at the top.

EUR and CHF have moderate volatility and high positive correlation putting EURCHF at the bottom.
  • #3
  • Last Post: Mar 7, 2009 10:42am Mar 7, 2009 10:42am
Quoting euclid
It's not. Check this table.

http://www.thefxmarkets.com/fxvolatility/

AUD and JPY are both have high volatility and high negative correlation putting AUDJPY at the top.

EUR and CHF have moderate volatility and high positive correlation putting EURCHF at the bottom.
Hi Euclid, thank you for correcting my mistake, but still that leaves my question unanswered, but from what I can deduct from your reply, it states that negative correlation was the main cause of high volatility.

I'm interested in finding out whether the quoted statement is true or not.

Thanks.
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