I’m new to the world of Forex and am just starting out on my study of the market.
What I’d like to know is: Are Forex markets naturally diversified? Does taking a concurrent position in multiple currency pairs reduce your overall risk?
I realise that Forex trading tends to be very short term vs trading the stock market, but I think there are some valid comparisons / counterpoints:
Global stock markets tend to follow each other on major movements (crash, rally etc)
Given that Forex markets are driven largely by individual economies / governments which aren’t often closely linked, my assumption is that a drop say in the value of USD will not overly affect say EUR/GBP.
Am I missing something here?
Also, my second question is around Forex PAMM / copy trading. I see a number of traders on various Forex trading sites who appear to have been very successful (50%+ gains over 12 months or more) and who’s trades can be automatically copied (usually for a percentage of the gains). What are the pitfalls and catches to these kinds of setups?
The answer is no. There are only a handful of actively traded currencies and some of them are often quite correlated (USD & CAD, EUR & GBP, etc.). And even if you want to delve into the less active currencies, you’ll find that emerging market currencies often move in a common way.
I totally agree there are indeed a handful of traders on the forex market everyday that is why it is very high in liquidity . Every minute there is always a trade going on.
Seems you try to swim against the mainstream. It’s good to think differently, I’m personally keen on making extraordinary approaches on solving problems (including trading analysis), but this type of “diversification” won’t live up to any expectations. The goal of any trading analysis is to find a pattern (call it correlation between currencies, event and currency, etc.) but not to gamble. Entering random trades lead to greater exposure of your account to trading risks and more transaction costs as well.
All markets and country economies are interlinked because we are all tied with various economic relations, like trade, credits, etc. World market is a unite system and have a BALANCE, and if there is some disturbance in some economy market imminently seek equilibrium making change in its other parts.
Be careful with PAMM accounts, fine statistics you see from fund managers may be only on paper and in fact it is thoroughly and well-considered ponzi scheme, like Russia oriented Panteon-Finance scam.
If you still seek ways to get profit with hands down I can recommend to try Autotrade from MQL 5 or MyFxbook, I use second option with Tickmill, it is integrated one so have very low latency in copying trades. But it’s hard to find adequate managers risk-consious and working long-term, most free ones tend to blow up for a couple of months.