Basket trading involves placing orders with each, covering a range of currency pairs.
Basket trading is designed to achieve the goal and this technique is often used by automated traders, hedge funds and large institutional investors who have a lot of capital to invest. Small investors use basket trading as a way of risk reduction. Another key advantage is that basket trading allows investors and traders more effectively manage their business.
Many traders create basket trading using hedge or independent currencies to reduce risk. Hedging purpose is when there is trading for long and short currency pairs together. Many countries, including USA, have banned that. For the solution of this problem can be used the system of correlated currency. The correlation defines the change of the ratio between two currencies in a given period of time. A positive value means that two currencies move in a similar direction, while negative value means that their movement aparts.
One simple strategy of basket trading is “jumping slots” technique, whose origins are as follows. Basket consists of two sets (eg. five pairs each case) correlated currency pairs, so that two sets are fully safe. On the demo account, the first set trades on long (buy) trade and the other on short (sell) trade.
Then the basket look like this: the most profitable currency pair are on top.
After a few days, should be all long trading on first five spots while short trading in the last five or vice versa. The aim is to wait until one of the bottom five jumps into first half. This pair is then traded in its original direction with real account. The usual practice is, that the trader closes trading when demo account returns on bottom half of the profit limit.