from stalla: Since risk is related to volatility, bid/ask spreads tend to be positively related to the volatility of currency exchange rates. 1. isnt risk = volatility? 2. when are the spreads NOT positively correlated?
Volume increases - spreads decrease
yea i know that. volume up liquidity up spreads down risk exposure down i’m asking when are spreads not in that positive relationship with volatility?
Volatility is one type of risk, but the terms are not interchangeable
Mandelbrot Wrote: ------------------------------------------------------- > Volatility is one type of risk, but the terms are > not interchangeable thanks. http://en.wikipedia.org/wiki/Volatility_risk
a related question: why are forward contracts with longer maturities less actively traded than do those of shorter maturities?
maybe because it’s harder to anticipate how things will evolve long term rather than short term. longer term contrats are therefore more risky