Beware of risking too much money trading related currency pairs

December 5, 2013 at 11:56 pm
One common mistake that people make when trading forex is risking too much money by trading the same currency across different pairs.

For example, all USD pairs such as EURUSD, USDCAD, USDJPY, etc. tend to move simultaneously with the US dollar index. Therefore, if the US dollar price moves against you, there is a big chance that your losses will add up across different pairs.
One way to avoid this problem is to split your maximum risk per trade between all related currency pairs. 
For example, let’s say that your trading strategy allows maximum risk of $90 per trade and you wish to open positions in 3 related currency pairs. In that case, the total risk in all pairs should not exceed $90. In other words, when you calculate your dollar risk in each related pair and add these amounts, the total should be $90 or less.