Hi guys,
I read this article on Yahoo about the Euro crisis Insight - Hedge funds find ways to trade euro misery - Yahoo! News UK.
Some way down Barclays state: “One way to profit from any greater swings in markets would be to play the spread between European and U.S. volatility indexes”
Does anyone know what these indexes are and where i can find them? Also is the Euro STOXX 50 one of them? and which US one would you compare with?
I think understanding this indexes, we can gage market sentiment better.
Many Thanks. Do you use them in your trading? If so, How?
I watch sometimes the Implied Volatility of the major pairs, but not use it as part of my trading strategy.
This is basically what volatility options traders expect for the currency pairs.
But here is something I found at AskPips about using VIX for FX, it may help you.
Yes, by taking into account the correlation of the currency pair to the stock market.
VIX stands for the volatility index of the S&P500 and is often referred to as the “fear index”. As such, it measures the implied or expected volatility for the stock market for the next 30 days. A high value means that higher volatility is expected. Also, extremely high readings usually indicate stock market bottoms and extremely low readings usually indicate stock market tops.
Now, the movement of the USD is inversely correlated to the movement of the US stock market. This is because, during times of risk aversion, traders tend to buy up the safe-haven USD and steer clear of riskier assets such as stocks. On the other hand, when risk appetite is high, traders buy up higher-yielding riskier assets, such as stocks, and sell the lower-yielding USD.
Putting these two concepts together… A high VIX reading indicates a market bottom, which means that stocks would soon climb up. By virtue of the stock market’s inverse correlation with the USD, this would then mean that the USD would soon drop. Conversely, a low VIX reading indicates a market top, which means that stocks would soon drop down and the USD would climb.
Also, here is an article about the VIX:
How to Use Volatility to Determine a Market’s Risk
Thanks for the links. Do you have any knowledge of capital flows. I came across this Flowindi.com | Best indicators for Forex, stock and commodity trading. what do you think of it.
Sounds good.
But I would only use it as an additional tool to your own strategy and in trending market conditions. I imagine it’s quite a mess in ranging markets.
Good luck
Only VIX is fear index of stock market.
It is hard to link it to currency trading.
