Lesson 5 of 7 · 7 min
Correlation risk
Three positions can be one big bet in disguise. Learn how pairs move together and how to count your real exposure.
By the end you'll be able to
- Explain what correlation between pairs means for open positions
- Count net exposure to a single currency across several trades
- Set a total-risk limit alongside the per-trade limit
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- 7 short lessons with quizzes and interactive tools
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You risk 1% on EUR/USD, 1% on GBP/USD and 1% on AUD/USD. Three careful trades. Then the dollar rallies and all three hit their stops in the same hour. You just lost 3% on one idea.
Pairs move together
Correlation measures how closely two pairs move: +1 means always together, −1 always opposite, 0 unrelated. EUR/USD and GBP/USD are usually strongly positive, because both are “something against the dollar”. EUR/USD and USD/CHF are usually strongly negative, because the dollar sits on opposite sides.
Correlated positions are the same bet, placed several times.
Count the currency, not the trades
Every forex position is a view on two currencies. Write out which currency you are long and which you are short in each trade, then add them up. If one currency appears on the same side three times, you have three units of risk on that currency, whatever the three tickets say.
Try it
Typical correlation between pairs
| EUR/USD | GBP/USD | AUD/USD | USD/JPY | USD/CHF | USD/CAD | |
|---|---|---|---|---|---|---|
| EUR/USD | ||||||
| GBP/USD | ||||||
| AUD/USD | ||||||
| USD/JPY | ||||||
| USD/CHF | ||||||
| USD/CAD |
Tap any cell to see what that correlation means for two open positions.
How many times are you really betting on the dollar?
Illustrative long-run tendencies, not live data. Correlations shift, so check current figures before relying on them.
Tick “buy EUR/USD” and “sell USD/JPY” in the exposure counter: it counts both as short the dollar, even though the platform shows two separate trades.
A second limit
The per-trade limit (1–2%) needs a partner: a total open risk limit, often 4–6% across all positions, with correlated trades counted as one. When you reach it, you wait for something to close before opening anything new.
Quick check
Question 1 of 3
EUR/USD and USD/CHF have a correlation of about −0.9. You buy both. What have you done?
Question 2 of 3
You buy GBP/USD and sell USD/CAD, 1% risk each. What is your exposure to the dollar?
Question 3 of 3
What is the purpose of a total open-risk limit?
Go deeper: Currency correlation: how to avoid doubling your risk