US based forex broker Oanda recently introduced currency baskets through its new social initiative called fxUnity. This is an interesting new tool that allows trading one currency, as such the US dollar or the euro against a group of currencies.
This enables going long or short on one specific currency, without having to take into consideration the other side of the currency pair. I had the chance to discuss this with the people behind this initiative.
Can you tell us more about currency baskets?
Currency baskets are a trading instrument alternative to currency pairs. They allow traders to focus on trading individual currencies or weighted groups of currencies against a collection of other currencies. Eight currency baskets are available on fxUnity at launch, including baskets for the U.S. dollar, the euro, Asian currencies, and emerging markets currencies. For more information about each of the specific currency baskets you can refer to https://fxunity.oanda.com/currency-baskets
Are currency baskets limited to the fxUnity initiative or are they open to any OANDA account holders?
At the moment, currency baskets are only available on the fxUnity platform. However, fxUnity can be accessed with any OANDA trading account by following a short activation process.
In the current environment, is there a high demand for shorts on the euro currency basket?
As you may know, OANDA publishes current positions and order information on our website with analysis tools. For example, our Open Positions Ratios allow users to get a sense of customer sentiment. Currently, we don’t include the currency baskets on fxUnity , but users can filter this display to view all of the underlying currency pairs. Further, we do have plans to incorporate more of these features into fxUnity in the near future.
A quick look at the Positions Ratio for the EUR/USD currency pair shows that for all fxTrade EUR/USD positions, customer sentiment is split about 50/50 between long and short positions. However, this changes constantly, so feel free to refer to the up to date Open Position Ratios at http://fxtrade.oanda.com/analysis/open-position-ratios.
Do you see clients taking positions on a currency basket of their respective countries (as a hedge)?
In an effort to respect our client’s privacy, we do not currently track customer sentiment based upon their home country.
Does market volatility impact the usage of currency baskets?
Since currency baskets are all composed of a collection of currency pairs, extreme volatility in one underlying pair within a currency basket may be counteracted by stability in another. Thus, when a user trades in the EUR basket, their trade will be influenced by the volatility of the underlying currencies they are trading the euro against (such as USD, GBP, CHF, etc.). However, because they are trading the euro against multiple currencies instead of merely one, there may be periods where some of that volatility could be reduced.
Thus, during times of greater volatility like we are currently experiencing with the euro right now, trading the euro against a basket of currencies may be seen by some as less risky than trading the euro against a specific currency. In the weeks following the inconclusive Greek election for instance, the euro came under increased selling pressure. For those that took the view that the euro was likely to weaken across the board, selling it against a basket containing stronger currencies could have been seen as a less risky approach than shorting it against just one currency.
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More and more features are planned for this, also according to the requests from existing clients. Forex social products are becoming more and more common. This product allows OANDA to stand out.
Further reading:
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