Currency correlations

  • This topic has 1 reply, 1 voice, and was last updated 3 weeks ago by James Barra.
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    Daniel Ed

      Help a beginner out here. I have started learning that some currency pairs are correlated so they basically all move together eg AUD/USD and NZD/USD. If I’m confident in my setup for one and it’s trending as expected should I be trading the other? I’ve also heard some people use currency correlations for hedging.

      I guess what I’m getting as is how can I use currency correlations to my advantage?

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      • #192992 Reply
        James Barra
        Moderator
          DayTrading.com Team

          Hi Daniel Ed,

          Have you looked at DayTrading.com’s guide to forex correlations?

          Currency correlations can be useful in short-term trading, but they come with risks. For example, trading both AUD/USD and NZD/USD simultaneously could increase your exposure, as they often move together.

          For risk management, you may be able to hedge by trading negatively correlated pairs (eg EUR/USD and USD/CHF) but short-term hedges aren’t perfect.

          Another strategy is using lagging pairs – if AUD/USD moves first, NZD/USD might follow, offering a second opportunity. But again, it’s not infallible.

          Ultimately, use correlations wisely to confirm trades or diversify risk, but avoid overtrading and double exposure. Always prioritize risk management.

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