Like a synchronized swimmer, some currency pairs change in tandem. And just like magnets repel each other, there are also some currency pairs that move in the opposite direction. When you trade multiple currency pairs simultaneously through your account, the most important thing is that you are aware of your risk exposure. You may think that trading different currency pairs can spread risk, but you should be aware that most of them tend to move in the same direction. Trading highly correlated currency pairs may increase your risk! The correlation between currency pairs can be strong or weak, lasting for weeks, months, or even years. But remember that they will change. Understanding the latest currency pair correlations can help you make better decisions if you want to leverage, hedge, or diversify your trading. Several precautions
The correlation coefficient is calculated using the daily closing price. The positive correlation coefficient indicates a positive correlation between two sets of currencies, which means they usually move in the same direction. The negative correlation coefficient indicates a reverse correlation between two sets of currencies, which means that they usually move in the opposite direction. The correlation coefficient is close to or equal to+1and-1Indicates a high correlation between two sets of currency pairs.
Correlation can be used for hedging, diversification, and leveraged position setting, keeping you away from positions that may be offset against each other. Currency Pairs with Same Direction Changes
Typical Reverse Movement Currency Pairs
When you want to trade two highly correlated currency pairs, you can choose any setting. When trading related currency pairs, ensure that you have relevant rules in place and adhere to your own risk management rules. |
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