But no worries because we’re going to start with the basics and break it down yo…
The first half… easy. Currency. No explanation needed.
The second half. Still easy. Correlation: a relationship between two things.
What is Currency Correlation?
In the financial world, correlation is a statistical measure of how two securities move in relation to each other.
When trading currencies, it’s important to remember that since currencies are traded in pairs, that no single currency pair is ever totally isolated. (Did we just confuse you with our “currencies” tongue-twister sentence there?)
Unless you plan on trading just one pair at a time, it’s crucial that you understand how different currency pairs move in relation to each other, especially if you’re not familiar with how currency correlations can affect the amount of risk you’re exposing your trading account to.
If you don’t know what the heck you’re doing when trading multiple pairs simultaneously in your trading account, you can get KILLED! Murdefied! Destroyed! We can’t stress this enough.
If the correlation is 0, the movements between two currency pairs is said to have uh ZERO or NO correlation, they are completely independent and random from each other. We have no idea how one pair will move in relation to the other.