The foreign exchange market is always on, and its volatility never rests. With over $7.5 trillion exchanged each day, the forex market is alive with constant price movement. For traders, this "what, when, and where" of trading in the global marketplace creates both opportunities and risks. Those who have a handle on volatility and know how to work with it through CFD trading see not fear-filled moments but moments ripe for profit.

Understanding Forex Volatility

Forex trading is highly price volatile, which presents brilliance opportunities and risks to traders. When traders try to profit, they usually do so from very fast-moving prices, which time stamp their trades. Very often, these fast-moving prices are the result of fundamental news or high-impact market events. Vivid violation of trades on the up and down sides – typical of market volatility – is what traders ideally look for.

The Forex market can be quite unstable, and this instability can change quite abruptly. An unstable Forex market is one where the price of the underlying currency pair can change substantially in a very short timeframe. The price of the underlying currency pair in an unstable Forex market can move at a staggering rate, covering the same number of pips and doing so in an equally astonishing timeframe. Some of the most unstable, quick-moving pairs you might find in markets are the EUR/JPY and the GBP/JPY.

What Are CFDs and How Do They Work in Forex Trading

The way traders access the foreign exchange markets has been completely turned upside down and changed for the better because of contract for difference trading. Instead of being funneled into the expensive, low-access, and heavily controlled world of spot foreign exchange trading, retail foreign exchange traders can now access truly inspiring opportunities in the foreign exchange markets through CFDs.

A CFD is a financial derivative that enables traders to speculate on price movements without taking ownership of the underlying asset. In forex trading, entering into a CFD means entering into an agreement to exchange the difference in price of a currency pair from the start of the trade to the end. If you can call the price direction, you win. If you can't, you lose.

The key advantage of trading in this way is that traders can work with positions that are much larger than their capital would otherwise allow. They can do this mainly because of leverage, which is available in spot forex but is much more flexible, and in better tune with a trader's risk profile, when accessed via CFDs. Also, CFDs allow for short-selling. It's actually pretty easy to short a currency in the CFD market.

An investor dealing in a CFD can trade a vast number of the most important, minor, and even exotic currency pairs. Those pairs can sometimes yield massive returns when market volatility is as high as it has been recently. For example, when the investor's CFD forex broker is off by a few pips or so, he has, in fact, got something on the move. And if those movements just so happen to be in currency pairs that aren't typically traded, you can be certain that's an opportunity.

Strategies for Profiting from Volatile Forex Markets

Trading on forex market volatility can be successful, but only if one uses tailored strategies that are honored to suit the current market condition. The secret is not in trying to use a single strategy that works across all market environments but rather in going with the flow and matching one's approach to the current volatility environment.

Scalping takes advantage of quick price changes that occur during the release of high-impact news. The strategy involves taking positions in the market for only a few moments, even just several seconds, and then exiting those positions. Scalpers try to make several small profits throughout the day, and they certainly don't hang around waiting for a trade to develop in their favor. During certain events, like the Non-Farm Payroll or Federal Reserve meetings, price moves can get pretty wild, and those are exactly the kinds of moments that many scalpers live for.

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