Is risk diversification even possible in the forex market? - page 8
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Well, look:
I gave an example with GBP/AUD (USD, JPY, NZD) where I was in 4 positions and one move took me out of all 4 positions.
As for me - in this situation there is no way to reduce the risk.
So I charged GBP (in pairs related to it) with 4 times bigger lot than allowed.
Do you get my drift?
What kind of risk reduction can there be if you trade highly correlated instruments?
If you trade, for example, GBPAUD NZDCAD EURUSD - one can understand it, but what is the sense in opening four deals on the GBP* and surely they are one-directional?
You will not increase the risk by trading multiple currencies unless you increase the load on the deposit.
In both cases I have to lose 10 trades in a row in order to get completely lost.
Or what do you mean by load?
What kind of risk reduction can there be if you trade highly correlated instruments?
If you trade, for example, GBPAUD NZDCAD EURUSD - one could understand, but what is the sense of opening four deals on the GBP* and surely they are one-directional?
This is the first one.
And second, I understood that all instruments have a dynamically changing correlation in forex.
Hence the question - how to distribute risks in this regard?
P.S.
I traded unidirectionally.
(just checked (purposely) how identical is the movement of these pairs...)
It's not only in this example.
There are plenty of other cases where I have come across inverse correlations or some kind of partial correlations (as far as I understand...)
(if they can be described that way...)
So I'm trying to figure out which tools are highly correlative and which are not.
No one is answering - that's the first thing.
And second, I understood that all the instruments have a dynamically changing correlation in forex.
Trade unidirectional.
(I was just checking (on purpose) how identical is the movement of these pairs...)
So the load on the deposit is the same.
In both cases I would have to lose 10 trades in a row to be completely wiped out.
Or what do you mean by load?
The load on the deposit is determined by the number of lots. If for example you would like to trade 10% of your deposit, then with a $10,000 deposit the total lot size of the open positions should not exceed 1 lot. If you trade one currency pair and one trade in the market, you should open with 1 lot. If you wish to open in 4 currency pairs, then the size of each position must be 0.25 lot.
What date was that?
I've had a lot of these situations on both the demo and the tester...
I don't remember now.
I had a lot of such situations both on the demo and on the tester.
See - diversification is necessary to reduce risk. In your case, you opened on the GBP and most likely got exactly under the dynamics of the GBP. It is the same if you buy AUDUSD, NZDUSD, EURUSD and get caught by the movements of the dollar - this diversification is of no use.
Diversify as I showed above -GBPAUD NZDCAD EURUSD for example.
Why then use diversification if not to increase the load on the deposit without increasing the risk?
I can't remember now.
I've had a lot of these situations on both the demo and the tester...