What are Currency Pair Correlations?

What is Currency Correlation?

Currency correlation depicts an extent to which two currency pairs have moved in same, opposite, or totally random directions over a period of time.

Thought Process:

Why a certain currency pair rises, another currency pair falls?

Why same currency pair falls, another currency pair seems to copy it and falls also?

This is because of correlations between currencies. Correlation is the numerical measure of the relationship between two variables. The range of the correlation coefficient is between -1 and +1.

Positive Correlations: A correlation of +1 denotes that two currency pairs will flow in the same direction.
For Example: Correlation between EUR/USD and GBP/USD is an epitome as if EUR/USD rises then GBP/USD is moving the same direction.

Negative Correlations: A correlation of -1 indicates that two currency pairs will move in the contradictory direction 100% of the time.
For Example: Correlation between EUR/USD and USD/CHF is an epitome of negative correlation, if EUR/USD rises, then USD/CHF falls.

Zero Correlation: The correlation of zero denotes that the relationship between the currency pair is completely arbitrary.

Currency correlation is strongly connected with risk management, and can help you to better understand the market when trading.

Some of the highly correlated currency pairs are:

Positive Correlations:

EUR/USD and GBP/USD (+ 0.89)

EUR/USD and AUD/USD (+ 0.81)

EUR/USD and EUR/CHF (+ 0.93)

AUD/USD and Gold (+ 0.75)

Negative Correlations:

EUR/USD and USD/CHF (- 0.85)

USD/CAD and AUD/USD (- 0.88)

AUD/NZD and NZD/SGD (- 0.78)

USD/JPY and Gold (- 0.78)

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5 Ways for Profitable Forex Trading

Forex Trading is profitable if the trader has taken care of following points

Trading style:

Identify what type of trader are you. Both will have different roles in trading.

* DAY TRADERS– Short term trading opportunities, higher risk, quick and responsive.

*POSITIONAL TRADERS– Long term opportunities, patient and emotionally balanced.

Trading Plan:

Having a Forex trading plan is one of the key elements to becoming a successful Forex trader. Many traders never even make a trading plan, let alone use one regularly. It’s very important that you do both; make a trading plan and use the one you make…don’t just make one and then never look at it like many traders do.

Trading Plan Helps you to:

*Assessing your skill
*Set your risk level
*Set yourself goals
*Prepare for trading
*Set Exit Rules

Trading Strategy

A Forex trading strategy is a technique used by a Forex trader to determine whether to buy or sell a currency pair at any given time. Forex trading strategies can be based on

• Technical Analysis

• Chart Analysis

• Fundamental Analysis

• News-based Events.

The trader’s currency trading strategy is usually made up of trading signals that trigger buy or sell decisions.

Emotional Balancing

All successful traders have come to realize, it is of utmost importance to have a psychological edge in trading and the ability to control your emotions and stay focused.

Market Fundamentals:

As the largest financial marketplace, forex is affected by an incredibly diverse amount of factors. These market fundamentals are the key pieces to determining when a currency is going to rise in value and when it’s going to fall. Trading on the fundamentals – also referred to as trading the news, is the study of news events and economic statistics to determine trading opportunities. These traders pay close attention to changes in economic indicators such as interest rates, employment rates, and inflation. By assessing the relative trend of these data points, a trader is analyzing the relative health of the country’s economy and whether to trade the future movement of their currency.

Join 300,000+ traders who stay ahead of the market, submit your details with us by filling our CONTACT FORM.

For the Best Forex Signal| Accurate Stock Signal| Profitable Comex Signals,Try Equidious Research Services. We have a team of best and well experienced Research Analysts.

Trading is an art of making handsome amount.

Enjoy Trading!

Learn About Forex Demo Account

The demo account (or we can say DEMONSTRATE a/c) is actually a platform for demonstration of all your theoretical knowledge. We might have learnt numbers of patterns, charts, indicators and many more analytical tools. However, as a beginner or an experience Trader, one cannot apply all these theory directly on Real Account and risk all the money.

Thus, Demo Account is an interface/platform where the user gets the same feelings, emotions and practical knowledge that he is getting in real account. Our Team suggest all the beginners to start trading with Demo Account for few days and then switch to real account.

Why To Start With Demo Account?

If you are beginner, then its really important to start trading with demo account for the following reasons:

• Demo Account doesn’t involve real money.

• Freely learn to place orders, follow the entry levels.

• Demo Account provides equal opportunity to use all the indicators as that of real account.

• May face and analyse the fundamentals of market without loosing any real money.

• Its a good practice platform.

What NOT to do with Real Accounts?

Well, as demo account is really helpful for all your learning purposes but the following things should be noted before starting with your real account.

• Capital Management. As demo account involves virtual money, traders makes an habit of trade with bigger lot size on real account also. Money Management is really important factor when you switch from demo a/c to real a/c.

• Risk Analysis. When you trade with demo account you are in risk free zone as you have nothing to loose but with real account Risk Analysis is important part of trading.

• Its really not necessary, if you are good in demo account then you will surely get good profits in real account. You may need expert Analysis or a good research team with good signals.

All the above qualities are being taken care in Equidious Research.

Join 300,000+ traders who stay ahead of the market, submit your details with us by filling our CONTACT FORM.

For the Best Forex Signal| Accurate Stock Signal| Profitable Comex Signals, Try Equidious Research Services. We have a team of best and well experienced Research Analysts.

Trading is an art of making handsome amount.

Enjoy Trading!

Forex Market Vs. Stock Market

Hi,

Forex and Stock market are different aspects of trading. Both have their own advantages.

Leverage:

Stock Trading as low leverage as compared to Forex Trading. Due to the high liquidity of the forex market, margins are low and leverage is high. It just is not possible to find such low margin rates in the stock market; most margin traders in the stock market need at least half of the value of their investment available in their margin accounts, whereas forex traders need as little as 2%. Furthermore, commissions in the stock market tend to be much, much higher than in the forex market.

Trading Options:

In Forex there are only 7 major currency pairs wheras stocks have thousands of options.

Market Accessibility:

Forex Market is a 24 hours for 5 days in week. It has 4 sessions whereas stock market has time limits. There are 4 main forex trading sessions with opening/closing hours based on the biggest financial centers.

Greater Freedom From Regulation

Stock trading on major exchanges has many regulations and limits; forex trading is less regulated. In some ways, the regulatory environment of the major stock exchanges imposes limits you may not welcome; it also protects you and other investors to a degree the forex does not.

Join 300,000+ traders who stay ahead of the market, submit your details with us by filling our CONTACT FORM.

For the Best Forex Signal| Accurate Stock Signal| Profitable Comex Signals, Try Equidious Research Services. We have a team of best and well experienced Research Analysts.

Enjoy Trading!

Foreign Exchange Market Participants

The $5 trillion dollar Forex market witnesses a lot of market participants. However, all of these participants have different motives. An understanding of these motives is required to predict their behavior in the markets. Also, some of these participants have deeper pockets, better information and are more active than the others.

There are various participating entities taking part in forex trading. The main players or the main market participants in currency exchange are Central Banks, largest investment firms or commercial bank, hedge funds, mutual funds and retail forex brokers etc.

Participants in Foreign Exchange Market:

Participants in Foreign exchange market can be categorized into five major groups, viz.; commercial banks, Foreign exchange brokers, Central bank, MNCs and Individuals and Small businesses.

• Central Banks:

  • Central banks are extremely important players in the forex market. Open market operations and interest rate policies of central banks influence currency rates to a very large extent.

  • Central banks are responsible for forex fixing. This is the exchange rate regime by which a currency will trade in the open market.

  • Floating, fixed and pegged are the types of exchange rate regimes. Any action taken by a central bank in the forex market is done to stabilize or increase the competitiveness of that nation’s economy.

• Small Business or Investors:

  • Small businesses also use foreign exchange market to facilitate execution of commercial or investment transactions.

  • The foreign needs of these players are usually small and account for only a fraction of all foreign exchange transactions. Even then they are very important participants in the market. Some of these participants use the market to hedge foreign exchange risk.

  • Hedgers: There are many businesses which end up creating an asset or a liability priced in foreign currency in the regular course of their business. For instance, importers and exporters engaged in foreign trade may have open positions in several foreign currencies. They may therefore be impacted if there is a fluctuation in the value of foreign currency. As a result, to protect themselves against these losses, hedgers take opposite positions in the market. Therefore if there is an unfavorable movement in their original position, it is offset by an opposite movement in their hedged positions. Their profits and losses and therefore nullified and they get stability in the operations of their business.

• Commercial Banks:

  • The major participants in the foreign exchange market are the large Commercial banks who provide the core of market. As many as 100 to 200 banks across the globe actively “make the market” in the foreign exchange.

  • These banks serve their retail clients, the bank customers, in conducting foreign commerce or making international investment in financial assets that require foreign exchange.

  • These banks operate in the foreign exchange market at two levels. At the retail level, they deal with their customers-corporations, exporters and so forth.

  • At the wholesale level, banks maintain an inert bank market in foreign exchange either directly or through specialized foreign exchange brokers.

• Foreign Exchange Brokers:

  • Foreign exchange brokers also operate in the international currency market. They act as agents who facilitate trading between dealers.

  • Unlike the banks, brokers serve merely as matchmakers and do not put their own money at risk.

  • They actively and constantly monitor exchange rates offered by the major international banks through computerized systems such as Reuters and are able to find quickly an opposite party for a client without revealing the identity of either party until a transaction has been agreed upon. This is why inter-bank traders use a broker primarily to disseminate as quickly as possible a currency quote to many other dealers.

• MNC:

  • MNCs are the major non-bank participants in the forward market as they exchange cash flows associated with their multinational operations.

  • MNCs often contract to either pay or receive fixed amounts in foreign currencies at future dates, so they are exposed to foreign currency risk.

  • This is why they often hedge these future cash flows through the inter-bank forward exchange market.

• Retailers:

  • The retail market designates transactions made by smaller speculators and investors.

  • Speculators are a class of traders that have no genuine requirement for foreign currency. They only buy and sell these currencies with the hope of making a profit from it.

  • The number of speculators increases a lot when the market sentiment is high and everyone seems to be making money in the Forex markets.

  • Speculators usually do not maintain open positions in any currency for a very long time. Their positions are transient and are only meant to make a short term profit.

  • These transactions are executed through forex brokers who act as a mediator between the retail market and the interbank market. Individual traders or investors trade forex on their own capital in order to profit from speculation on future exchange rates. They mainly operate through forex platforms that offer tight spreads, immediate execution and highly leveraged margin accounts.

Join 300,000+ traders who stay ahead of the market, submit your details with us by filling our CONTACT FORM.

For the Best Forex Signal| Accurate Stock Signal| Profitable Comex Signals, Try Equidious Research Services. We have a team of best and well experienced Research Analysts.

Trading is an art of making handsome amount.

Enjoy Trading!