[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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[James Barra]

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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