<p>The first reason for which volatility is higher is the liquidity of currencies. It has no storage or transportation costs. It can be used to purchase goods or traded again without additional costs. It doesn't age as fast as some commodities (agricultural products don't last forever). Therefore, the volume of trade is very high, and market participants can very easily enter or exit the market.</p>

<p>Forex is extremely suitable for speculation: money relates to a lot of political decisions, macroeconomic trends and many other driver that are easily and publicly available. Therefore it might be easier to small private traders to trade currencies than firms, which require deeper knowledge. It is indeed easier to read a standard newspaper than to read an earning call transcript.</p>

<p>Moreover, Forex market's design also favor volatility: currencies trade 24/24, not 9 to 5. That means more people have access to it at any point in time. Another critical point is that there is a gigantic quantity of derivatives based on currencies. They can be used both for speculative purposes (thus generating leverage and increase the potential upside of the bet), or to generate protection against currency movements.</p>

<p>All these elements contribute to make foreign exchange markets more volatile than commodities'.</p>

CC BY-SA 3.0
2016-01-08T21:47:39.793Z
2016-01-08T21:47:39.793Z
Hector
<p>Compared to commodity markets, money markets move a lot. My guess is that commodity markets are less elastic due to fixed production costs. But I don't know if that is the correct explanation. </p>

CC BY-SA 3.0
2015-07-20T15:34:35.720Z
@user5174 The main distinction between a regular commodity and FOREX product is that a regular commodity is purchased to be consumed whereas a FOREX product is purchased for speculation.
AnilB
CC BY-SA 3.0
2015-07-11T22:12:41.437Z
Site note: money is  a commodity too. Its value can increase or decrease. It plays by supply and demand rules. Just for some reason it's a commodity in which other commodities' value is expressed but it is definitely a commodity itself.
matcheek
CC BY-SA 3.0
2015-07-11T22:20:05.267Z
@matcheek Indeed, my initial statement was poorly worded. I meant why does it seem to fluctuate more than other commodities.
Pablo Derbez
CC BY-SA 3.0
2015-07-12T17:17:27.047Z
Over what time horizon? Are you talking short-term volatility, or longer-term trend variation? And do you mean secured or unsecured funding markets, or both?
dismalscience
CC BY-SA 3.0
2015-07-13T03:37:01.707Z
@dismalscience Short time horizon, both
Pablo Derbez
CC BY-SA 3.0
2015-07-13T03:54:48.390Z
And just to be clear, you're not asking about quarter-end (and to a lesser extent, month-end) effects, which are responsible for most of the volatility in money markets?
dismalscience
CC BY-SA 3.0
2015-07-13T04:38:22.537Z
@dismalscience No, I'm not asking about these effects. By the way, the idea that "money market [prices] fluctuate more than other commodity market [prices]" may be totally false. It comes from the loose observation (quasi-empirical? just plain preconception?) that prices for a carton of eggs, coca-cola, or a pack of cigarettes seem to change less than say, stocks or securities. If you think there is something wothwhile behind this intuition I would love to hear it. PS.  Is FOREX considered a money market? I tried to search for an answer by myself but to no avail. Thank you for you time.
Pablo Derbez
<elasticity><financial-markets>
Why do money markets fluctuate so much?
Pablo Derbez
# Why do money markets fluctuate so much?

(Asked by: username_0 on 2015-07-11)

Compared to commodity markets, money markets move a lot. My guess is that commodity markets are less elastic due to fixed production costs. But I don't know if that is the correct explanation.

**Tags:** elasticity, financial-markets
> **Comments:**
> **username_2**: Site note: money is  a commodity too. Its value can increase or decrease. It plays by supply and demand rules. Just for some reason it's a commodity in which other commodities' value is expressed but it is definitely a commodity itself.  
> **username_0**: @matcheek Indeed, my initial statement was poorly worded. I meant why does it seem to fluctuate more than other commodities.  
> **username_3**: Over what time horizon? Are you talking short-term volatility, or longer-term trend variation? And do you mean secured or unsecured funding markets, or both?  
> **username_0**: @dismalscience Short time horizon, both  
> **username_3**: And just to be clear, you're not asking about quarter-end (and to a lesser extent, month-end) effects, which are responsible for most of the volatility in money markets?  
> **username_0**: @dismalscience No, I'm not asking about these effects. By the way, the idea that "money market [prices] fluctuate more than other commodity market [prices]" may be totally false. It comes from the loose observation (quasi-empirical? just plain preconception?) that prices for a carton of eggs, coca-cola, or a pack of cigarettes seem to change less than say, stocks or securities. If you think there is something wothwhile behind this intuition I would love to hear it. PS.  Is FOREX considered a money market? I tried to search for an answer by myself but to no avail. Thank you for you time.  
> **username_1**: @user5174 The main distinction between a regular commodity and FOREX product is that a regular commodity is purchased to be consumed whereas a FOREX product is purchased for speculation.  

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## 1 answers

### Answer by username_4 on 2016-01-08. Score: 2 | Accepted answer

The first reason for which volatility is higher is the liquidity of currencies. It has no storage or transportation costs. It can be used to purchase goods or traded again without additional costs. It doesn't age as fast as some commodities (agricultural products don't last forever). Therefore, the volume of trade is very high, and market participants can very easily enter or exit the market.

Forex is extremely suitable for speculation: money relates to a lot of political decisions, macroeconomic trends and many other driver that are easily and publicly available. Therefore it might be easier to small private traders to trade currencies than firms, which require deeper knowledge. It is indeed easier to read a standard newspaper than to read an earning call transcript.

Moreover, Forex market's design also favor volatility: currencies trade 24/24, not 9 to 5. That means more people have access to it at any point in time. Another critical point is that there is a gigantic quantity of derivatives based on currencies. They can be used both for speculative purposes (thus generating leverage and increase the potential upside of the bet), or to generate protection against currency movements.

All these elements contribute to make foreign exchange markets more volatile than commodities'.


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