What is Forex and how does it work?
27 November 2015
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theforexscalper
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info@theforexscalpers.com
Correlation in Forex Trading
The statistical measure of how two different assets move in relation to each other is the correlation in finance.
There is a positive correlation between assets tending to move in the same direction.
For example, A positive correlation between the value of the Canadian Dollar compared to the U.S. is observed.
And the dollar and the price of crude oil in the United States Dollars.
Conversely, there is a negative correlation between assets usually moving in opposite directions.
And there is typically such a negative correlation between the exchange rate of EUR / USD and the exchange rate of USD / CHF.
Correlation in Forex Trading
Currency correlations highly influence the overall volatility of a portfolio of forex currency pairs, and thus the risk involved in keeping them.
As a consequence, a crucial aspect of currency risk management for any serious forex trader to understand learning how to use currency correlation.
So the trader should first consider how to market correlation influences the value of currencies to comprehend the idea of forex correlation in currency pairs.
Correlation in Forex Trading
If two currency pairs move in the same direction, one pair moves up, the other pair also move up.
But if the EUR / USD and GBP / USD are positive, for instance, because if the demand for the U.S. Dollars is increasing, and the amount of both currency pairs is generally decreasing. Alternatively, if the market for U.S. Dollars will fall, then both currency pairs’ levels will begin to rise.
The negative correlation is the opposite of the positive correlation, with currency pairs’ exchange levels typically moving inversely to each other.
For example, the EUR / USD and USD / JPY currency pairs have a negative correlation.
As demand for US dollars grows, currency pairs frequently move in opposite directions, with USD / JPY usually rising due to the base currency in the pair being the US dollar, and with EUR / USD decreasing since the counter currency in that pair is the US dollar.
Correlation in Forex Trading
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Welcome to my author blog. With over 12 years of experience in the financial markets, Trading is more than a profession for me; it's a passion that has fueled my curiosity and determination. Over the years, I've explored various trading strategies, dabbled in different asset classes, and navigated through the ever-evolving landscape of technology and innovation. Through it all, I've witnessed firsthand the transformation of the financial industry. My mission is to share the wealth of knowledge I've gained over the years with you, my fellow traders and aspiring investors. Whether you're a seasoned pro looking for fresh perspectives or a newcomer eager to understand the basics, you'll find something valuable here.
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