​The Trump administration has not yet formally deployed the long-awaited latest $200 billion in tariffs against China, but a new Wall Street Journal report indicates that Japan might be next on the agenda.
Article / 29 June 2012 at 9:33 GMT

How I use TradingFloor's online FX Correlations tool for trading

Director / Accumen Management
United Kingdom’s free online trading tools are among the most popular features in this online trading community, or so my editors tell me.  As an FX trader, I have used and continue to use these applications in practical everyday situations - but rather than run you through a dull and dry technical tutorial of how to use them, allow me to relay from personal experience how I do.

Free online Forex correlations tool  The first tool I’m going to look at is the FX Correlations tool.  There are two versions of the tool – one using nodes and one using traditional bar charts, which you can access via the 'show details' arrow.  Dragging the various colorful nodes around and visually seeing the relative correlation size can be of of great help,

Free online FX correlations tool though it ultimately comes down to whether you’re a visual or empirical person to determine which works best - bobbles or bars (bar charts). But the net effect/result should be the same, i.e. the ability to find some semblance of a relative value trade without getting sucked into the horrible risk on/off abyss.

Given how much has been made of the whole “risk on/off” dynamic that this market has been so wrapped up in over the last 18/24 months, I thought it most appropriate to have a look at what this genuinely translates to in real terms for the G7 pairs. I don’t run a whole manner of regression analysis, models, unmanned space flights etc. so having ready access to someone else having done the work for me is indeed very welcome.

Correlations with many variables

For instance, the FX correlations tool tells me that the USD will be sold against both the GBP and the AUD when risk is basking in its glorious popularity, however the pace and volume with which it’s sold against these two will vary depending on a number of variables, current positioning, upcoming data/risk events, current economic policy as related to recent retarded headline etc...This in of itself gives rise to the potential to trade the GBPAUD direct as a cross of its own merit.

Now whether you buy or sell it will depend on the above mentioned beta as well as a host of other variables mentioned. In an attempt to get a better grasp of which might be better (buy or sell) you can do one of two things:

  • Sit glued to your screen for 16 hours a day watching and noting price action and reaction
  • Use the FX correlation tool and examine correlations of the GBPUSD and the AUDUSD to the EURUSD which takes about 7 minutes.

I have spent near on 20 years employing the former method and I can assure you, I would much rather have lived a normal life and employed the latter method and likely achieved the same (if not better) results!

Using the tool to look at AUDUSD and Cable

Using the FX Correlations tool, I have been able (via the various legs) to gain a better understanding of when the AUDUSD and the Cable have been sitting at significant support levels and the EURUSD decided to fall out of bed on the day (because it could) there was a far greater likelihood that the AUDUSD would tumble far quicker and its “beta” would be far greater to the EURUSD move than that of the GBPUSD in the same instance.

Thus the favoured trade would be (given my loathing of trading direct USD legs in these instances) to buy GBPAUD, as the GBP holds, while the AUD joins its pillow talk buddy the EUR and both fall out of bed. How have I been able to determine this? Simple really, I took a closer look at the size of relative correlation of the AUDUSD (+0.573) to the EURUSD as compared to that of the GBPUSD (+0.4508) to the EURUSD and the numbers spoke for themselves.

Using the tool to figure out how to diversify

Citing another example of practical use of the FX correlations tool I have actually used it to gauge how to diversify out of USDJPY and associated BoJ intervention risk while still maintining my bias for a weaker JPY as part of somewhat rather convoluted safe haven flows.

The greatest single negative correlation to the USDJPY is by far and away the EURCHF (-0.4812). Having been able to see this relationship for what it really is, rather than guesstimating a close enough approximation I was able to keep my USDJPY shorts, while simultaneously diversifying (partially hedging against BoJ jawboning) by holding a long EURCHF position roughly half the nominal size of my USDJPY trade.


How do you use the FX Correlations tool?  Answers on a postcard, or in the comment space below. 



The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail