How do currency correlations change my risk when I open several trades?
I bought EURUSD and GBPUSD at the same time and both hit my stop. Was that bad luck?
For education only. This is not financial advice. Trading carries a high risk of loss.
Log in to reply.
1 Answer
Best answer
Partly. If two pairs move together, opening both is almost like doubling one trade. EURUSD and GBPUSD are often positively correlated, so buying both means you are twice short the dollar. EURUSD and USDCHF often move in opposite directions, so buying EURUSD and USDCHF together partly hedges you.
Correlations change over time, so check a correlation matrix instead of assuming. To control risk, count correlated trades as one position when you calculate your total risk.
Log in to reply.
