What is Diversification?
Diversification
Forex Trading Glossary
Quick Answer: Diversification reduces risk by spreading exposure across multiple pairs, strategies, or timeframes.
What is Diversification?
Diversification spreads risk across multiple assets, strategies, or timeframes to reduce reliance on any single outcome. Even in forex, diversification can smooth equity curves.
Ways to Diversify
- Currency mix: Trade a basket of major, minor, and cross pairs.
- Strategy variety: Combine trend-following, mean reversion, and carry trades.
- Timeframe diversification: Blend intraday, swing, and position trades.
- Risk allocation: Adjust position sizes so no single trade dominates exposure.
Balance, Do Not Dilute
Diversification should reduce risk without spreading resources so thin that performance suffers.
Implementing Diversification
- Correlation analysis: Track pair correlations to avoid overlapping trades.
- Portfolio metrics: Evaluate drawdown and volatility across strategies.
- Dynamic rebalancing: Reallocate capital as market conditions change.
- Review periodically: Confirm that diversification still provides benefit.
Related Terms
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