Hello Senior Traders
I have a doubt, Can I trade with multiple pairs of currencies. In which one currency is Quote Currency in one Buy trade and the same currency is Base currency in another SELL trade … Will they conflict.
For Example : I m trading the following currencies SELL:USDJPY and BUY:CADJPY…
Doing Trade like this is good Or need to avoid this???
Your example does not match your question.
In your question, you ask:
Then, in your example, both your BUY and your SELL have the same quote currency (JPY):
In order to answer your question about conflicts, I’ll have to answer it twice: once in the context of your question (above), and once in the context of the example you gave.
• First, based on your initial question, in which a currency is the QUOTE currency in your BUY, and the same currency is the BASE currency in your SELL, let’s use the following scenario:
Let’s say you BUY one lot of EUR/USD, and SELL one lot of USD/CAD. In effect, you BUYING the EUR/USD and you are also “BUYING the CAD/USD” (using the inverse of the standard USD/CAD pair, in order to make a point).
These two positions are USD-correlated – meaning that together they double the impact of any strength or weakness in USD. This may, or may not, be a “conflict”, depending on your intent in these trades. But, if this correlation is unintentional, you should take steps to avoid it.
• Second, based on the example you gave, in which JPY was the QUOTE currency in two different positions, you have another case of correlation. This time, your two trades are JPY-correlated – meaning that together they double the impact of any strength or weakness in JPY. The caution regarding unintentional correlations given above applies here, as well.
• Finally, if you trade through a U.S. broker, you are prohibited from entering any trade defined as a “hedge”. That would be a trade in which you have a LONG position and a SHORT position in the same currency pair. For example, if you BUY one lot of EUR/USD and then sell one lot of EUR/USD, your SELL will cancel your BUY, leaving you with no position. In the U.S. such a hedge clearly “conflicts” with the rules dictated by the regulator.
In other countries, where hedging is not outlawed, some traders insist that it makes sense to hedge certain positions in certain situations. However, other traders (myself included) would argue that a hedge represents an inherent conflict, in that each position cancels the profit (or loss) in the other position.
Under normal market conditions, it is acceptable to view the pairs you mentioned seperately. However, if you sell UJ, then you believe that the jpy is rising and if you buy CJ, then you believe jpy is falling. So, you already hedged against a large move in jpy. If there is a large move in jpy because an interest rate decision for japan, for example. Then you should not put all your eggs in one basket if you are planning to be in a trade during the news. I wait until after the news so it does not affect me. There are some pairs I don’t trade at the same time in the same direction and will choose the best choice instead. Examples are GU and EU or AU and NU.
Yes, you can do that if you’re trying to hedge against a big move in JPY, but realistically, a move on JPY is probably going to be cancelled out. You could get the same result with lower losses to spread and commission by selling USDCAD
Initially, don’t make this type of trade if you are confused but personally, I don’t count correlation in my live trading.