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Correlations between different currency pairs can indicate risk to trade strategy. For example, if EUR/USD and GBPUSD are positive correlated pairs, there is a possibility of double risk if one of them is strong.
The Live Currency strength Meter is a visual aid that indicates which currencies perform well and which are weak. Switch Markets Live currency Strength Meter is a simple concept. This uses the exchange rate of different currency pairs to present a visual representation for each currency's performance.
Traders can avoid unnecessary hedging by knowing the correlation strength between pairs in advance. A negative correlation between EUR/USD or USD/CHF can indicate that the pair is moving in different directions. Thus, if you trade long on either one or the other, you are likely to win on one but lose on the others.
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A Forex correlation matrix shows you which currencies are closely related. You can then avoid making trades with these currencies and reduce your exposure to weaker currencies.
Calculate the Swap Rate to Hold Forex Positions Overnight Before You Execute a Trade with our Free Forex Swap Rat Calculator.
Assets with high correlation move in a similar direction. This is why it is not a good idea to open multiple positions using pairs that are high in correlation. You are basically making the exact same trade twice. If the market is against you, this can put you in a very vulnerable situation. Forex traders who place long positions on the AUDCHF/AUDJPY or EURJPY are at risk of double exposure if they have high correlation.
Calculate your profits or losses before or during a trade using our Forex Profit Calculator.
The Admirals Forex correlation matrix demonstrates the correlations of the following currency pairs.
You can identify the strength and weakness of each currency in real-time directly through your trading platform. USD, EUR, GPB, CHF, JPY,CAD and other currencies can be compared.
You should dig deeper to see that the above positions expose you to double the risk of AUD and JPY. This can lead to trade losses if the movement is not in your favor.
The strength of major currencies can be measured in real time and used to quickly and easily determine whether a currency has moved strongly in one or the other direction.
Another possibility is that one pair is indicating a strong trend, and the other is just ranging. This could signal traders to not enter trades in the opposite direction with correlated pairs. Traders should avoid trading GBP/USD when the EUR/USD has a downtrend. The downside risk of USD strength could mean that GBP/USD might be stronger.