The volatility of a pair is estimated by working out the standard deviation of its profits. The standard deviation is a proportion of how broadly values are scattered from the average value (the mean)

The higher the level of volatility, the bigger the risk, and as a result many traders place a lot of importance on establishing the level of volatility of a currency pair. Many gauge it by looking at the currency pair's average true range. They can also look at the range as a percent of spot. Moving averages and ATR are commonly used to measure volatility.