Warning - synthetic couples and their hazards.

Warning - synthetic couples and their hazards.
We all know that EUR/USD couple is differentiated with high liquidity. Extremely high. And that is just great… for those who trade EUR/USD. For other that brings up unnecessary questions. For example – ok, if all the liquidity is going into EUR/USD trades, is there any liquidity left for the rest of trade. and that is the point where out today’s topic comes in.

Synthetic couple. And no, these are not two robots very much in love. That is a forex term invented by traders with a very rich imagination.

Imagine that you need to buy CAD/NZD. But you wouldn’t be very successful in it. Because the volume and liquidity are not nearly as high as you need them. To go through with the trade, you would have to buy CAD/EUR AND EUR/NZD just because liquidity levels are much higher with these two and that means that you are going to be able to trade in higher volumes. 
But there is one thing. Just a small detail. DON’T DO IT.
Image
And look what happened. In EUR/NZD you are selling EUR and in CAD/EUR you are buying EUR. That means that in these trades your EUR volumes are cancelled out and you are simply trading CAD/NZD.

 
The thing is that trades like that are very unnecessary. First you are putting down two separate position each with its own margin. That mean that you are risking additional capital. And you really do not need to.

Trading synthetic couples is really a thing of the past. Right now we have access to all the possible pairing. Your broker probably offers pairing like for trading. and I am pretty sure that you are not trading volumes large enough in order for the low liquidity to create problems for you.

Low liquidity can only be felt at grand levels of yard trading (that being trading billion of units).

So, save yourself time and pips and try and stay away from synthetic couples. Do not create risks for yourself in an already risky environment.  

Comments powered by CComment