Yen draws safe-haven demand as Nasdaq plunges: what volatility means

Stocks, not currencies, made the big move late on Thursday. The Nasdaq 100 plunged 6.36% as an AI-led selloff spread, its worst day since 2020, according to investingLive. Investing.com reports that the rout lifted the safe-haven yen while the dollar stayed flat.

The ECB reference rates from Thursday, 5 November, show how calm currencies were by comparison. USD/JPY was fixed at 158.46, up 0.13% from 158.25. EUR/USD was fixed at 1.1224, down 0.38%. These are once-a-day official fixings, not live quotes, so they do not capture the full US session. Investing.com also notes that traders are watching US payrolls data, and our sister site covers how the yen gained favor as the Nasdaq rout spread.

What is volatility?

Volatility is how much, and how fast, a price moves. A market that jumps up and down a lot is highly volatile. A market that drifts in small steps has low volatility.

Volatility says nothing about direction. A price that rises 1% and then falls 1% is volatile even if it ends where it started. Traders often measure it in two simple ways:

• Average daily change: the typical size of one day's move, ignoring whether it was up or down.
• Range: the gap between the highest and lowest price over a period.

A worked example

Here are the last five ECB fixings for USD/JPY and the change from one fixing to the next:

Average daily change. Drop the signs and add the sizes: 0.41 + 0.25 + 0.03 + 0.13 = 0.82. Divide by 4 moves: 0.82 / 4 = about 0.21% per fixing.

Range. The high was 158.46 and the low was 157.25. That is 158.46 - 157.25 = 1.21 yen, or 121 pips (a pip in yen pairs is 0.01). As a share of the low: 1.21 / 157.25 = about 0.77%.

Now do the same for EUR/USD. Its fixings ran 1.1172, 1.1216, 1.1179, 1.1267 and 1.1224. The daily moves were +0.39%, -0.33%, +0.79% and -0.38%. Sizes added: 0.39 + 0.33 + 0.79 + 0.38 = 1.89. Divided by 4: about 0.47% per fixing. So over this week, EUR/USD was more than twice as volatile as USD/JPY by this measure.

Compare both with the Nasdaq 100's single-day drop of 6.36%. That one stock-market move was roughly 30 times the size of USD/JPY's average fixing-to-fixing change (6.36 / 0.21 is about 30).

Why it matters for new traders

Volatility sets the size of the swings you will face. In a more volatile pair, the same position can gain or lose more money in a day. Many traders use it to decide how large a position to take and how far away to place a stop-loss, an order that closes a trade at a set price to cap losses.

Volatility can also change fast. A quiet week can turn busy when a shock hits, such as a stock rout or a major data release. investingLive reported that US initial jobless claims came in at 189,000 versus a 196,000 estimate, and payrolls are next on the calendar. Banks also publish views: Citi sees the dollar weakening against the yen after the US midterms, according to Investing.com. That is Citi's forecast, not a certainty.

You can see recent swings on the USD/JPY chart and the EUR/USD chart.

Key terms

• Volatility: how much and how fast a price moves, in either direction.
• Average daily change: the typical size of one day's move, ignoring the sign.
• Range: the distance between the high and the low over a period.
• Safe-haven currency: a currency, such as the yen, that investors often buy when markets turn fearful.
• Stop-loss: an order that closes a trade at a set price to limit losses.