Diversification of -portfolio - competent risk aversion
Today there are a large number of publications that talk about the benefits of diversifying trading portfolios in financial markets, but only a few of these publications describe the possibilities of diversification within a -portfolio. At the same time, the market provides excellent opportunities for hedging, risk diversification.
Diversified portfolio of strategies
So, what does risk diversification mean? It's dividing your capital into different accountswhich helps to save your money in case of force majeure, i.e. when the market turns in a different direction than you predicted.
It should be understood that any financial market is set in motion by unforeseen events and human emotions, respectively, it is impossible to accurately predict the price movement. Accordingly, it is very important to have a diversified portfolio of strategies. The ability to profit without regard to price directions is an invaluable advantage.
However, despite the fact that diversification -portfolio seems, at first glance, a fairly simple strategy, this is not at all true. In fact, the vast majority of traders lose some or even all of their own original assets through inept, illiterate risk diversification.
The nature of currency markets is such that it is important that traders carried out diversification only within trading accounts. At the same time, diversification does not necessarily have to be associated with the purchase of EUR and the sale of Swiss Franc. True diversification can be achieved by using different trading strategies.
For example, one of the options is to transfer part of your trading assets to another trader. And it is not that the other trader will necessarily have better results compared to you, but in this way you can achieve diversification. Regardless of their experience, skills, all traders go through periods of losses and gains, so the work of more than one trader will reduce the volatility of your trading portfolio.
Correlation and optimal spread
But there are other options, for example, SpreadTrade. The net result of such tactics is a reduction in the level of variability, which, however, will be accompanied by a reduction in the potential profit. Thus, traders trading on spreadsThey place a position in one market to speculate, in another to hedge against a wrong forecast.
In order to build an optimal spreadIf you have a specific currency, you should determine the correlation between specific currencies. The simplest example is the Swiss Franc versus the Euro. The Franc has a positive correlation with the Euro, but in absolute terms, it makes smaller movements. By exposing both currencies against a common denominator, you can easily hedge any position on the Euro if you open an opposite position on the Franc.
Another example is Australian and Canadian dollars. The Australian dollar has a fairly high correlation with the Canadian dollar, which is characterized by stability. Also, as in the previous example, any position in the Australian dollar can be hedged with an open position in CAD.
There are a huge number of trading strategies, theories, ways to diversify any position. It is important to remember about the fact that in some market situations, hedging can lead to losses on both sides of the spread. Fortunately, this does not happen very often.
Competent Risk and Profit Avoidance)