Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

Range definition

Range is the difference between a market’s highest and lowest price in a given period. It is mostly used as an indicator of volatility: if a market has a wide range, it's a sign that it was volatile over the period analyzed.

Utilizing range

As with any indicator of volatility, range can be used as a means of measuring a trade’s potential risk. If a market is trading with a wide range, then the risk associated with trading it will tend to be higher.

It can also be used to identify support and resistance levels – if a market has been trading within a certain range for a long period, then the upper and lower limits of that range can be taken as strong areas of support and resistance.

Calculating range

To calculate a market’s range, you just take the highest price point that it reached in the period you are analyzing, and take away the lowest price point. Say, for instance, that gold hit a high of 1265 and a low of 1246 on a given trading day. Its range for that day would be $1265 - $1246 = $19.

If the next day it hit a high of $1256 and a low of $1247, it would be $9 – meaning that it was much more volatile on the previous day.

Comparing range

There are lots of factors that can affect range, and what is considered wide for one market may be considered narrow for another. For example, an $8 weekly range for a US blue chip like Wal-Mart would be viewed as highly volatile – whereas gold regularly moves more than $8 in a single day. And even in equities, range can differ hugely from sector to sector.

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