correlation of currencies

Discussion in 'Forex' started by Daxtrader, Apr 3, 2007.

  1. If i'm long USD/CAD and short EUR/CAD at the same time, can both trades be winners? The reason I ask is because I've done this a few times and one of them always seems to work out while the other hits my stop.

    Anyone have any resources to find out how each currency pair is correlated?
  2. Didn't you just create a synthetic short of EUR/USD?

    Check this out:
  3. dhpar


    I am not activelly trading FX but if you talk in terms of delta isn't this like trading short EUR/USD?
  4. HornedGod


    The previous comments above that you've created a synthetic position that equates to a short EUR/USD position is of course dependant on the lot sizes for your two positions.

    If you bought and sold the same amount of CAD in each position then you have in effect ended up with a short EUR/USD position (i.e. you've hedged out any impact that CAD has).

    You might find doing some reading on currency correlations will help clarify this.

    The short answer to your initial question, about if both positions can be winners, is yes.

    This of course depends on how your synthetic short position on EUR/USD works out. If the euro weakens and/or USD strengthens then you should be in the black for both positions if there were no change in CAD.

    If CAD changes, then you might make some extra money in one of the positions but lose it in the other. The resulting amount will still end up equally the movement in EUR/USD (if you're perfectly hedged against CAD of course).

    Both currency pairs that you are trading can still move independently, so how tight your stops are will also play a role here.