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Looking deeper, the positions mentioned above bring double exposure to JPY and AUD, which can make trades more difficult if the market moves in the opposite direction of the trader's expectations.
Live Currency Strength Monitor is a visual tool that displays which currencies are performing well, and which ones are doing poorly. Switch Markets' Live currency strength meter is a simple concept. It compares the exchange rates of different currency pair to display the individual currency's performance.
Correlation between different currencies pairs can indicate the risk of trading strategy. If EUR/USD is strong and GBPUSD is weak, this could indicate a potential double risk.
In real time, measure the strength relative to other major currencies. You can quickly determine if a currency moves strongly in one direction.
The Admirals Forex correlation matrix below shows the correlations between these currency pairs:
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One pair could indicate a strong movement while the other indicates a range. This would signal traders to avoid trading with correlated pairs going in the opposite direction. A trader might avoid longing GBP/USD if EUR/USD is experiencing a downtrend while GBP/USD may be ranging. This is because GBP/USD carries a greater downside risk than USD strength.
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Assets that are highly correlated move in the opposite direction. You should not open multiple positions in highly correlated pairs as you could be trading the same trade multiple times. This can make you vulnerable if the market goes against you. Forex traders who are long the AUDCHF and AUDJPY in Forex risk double exposure if these currencies are closely correlated.
You can see which currencies are stronger or weaker than others directly from your trading platform. USD, EUR, GPB, CHF, JPY,CAD and more can all be compared!
You can quickly see the Forex correlation matrix to identify which currencies are correlated. This allows you avoid making these trades and prevents double exposure to weak currencies.
With our Forex Profit Calculator, you can calculate your profits before and after making a trade.
Traders can avoid unnecessary hedges if they know the strength of each pair's correlation. You can see that there is a negative relationship between EUR/USD/CHF. This means that you know these pairs are moving in different direction. You would therefore likely lose one trade while you win the other if you had long trades.