Many of the professional traders use the beta coefficient to predict the forex returns. Beta coefficient is a statistical measure that can be used to compare different pairs. Through this trading guide by Confixfinancial which is a Forex Trading platform, we are going to tell you different beta option forex and stocks trading strategies that a lot of FX hedge funds use on Wall street.
In this article, we will tell you about How to use Beta in Trading and when
How to Use Beta Trading strategy in Stocks VS Forex?
According to ConfixFinancial, knowing how beta coefficient can help in trading. Here is what you need to know:
- Higher beta coefficient offer a higher level of diversification (Stocks)
- Lower beta coefficient offer a little low of diversification (Stocks)
When you are creating your stocks portfolio you can use beta coefficient. Beta is a great tool to design a large & diversified portfolio and also reduce volatility. “low beta stocks will generate lower returns because of their less volatility. It’s improbable for low beta stocks to outperform the benchmark S&P 500.” – says Confixfinancial, “By contrast, high beta stocks can potentially outperform the benchmark S&P 500. However, high beta stocks are riskier.” they added.
This gives us two golden rules:
- If you know the beta of your portfolio then you know the assessment of the stock’s risk too
- On the other hand, you can apply beta to your stock picks.
While in Forex, first need to measure how currencies relate to each other in terms of volatility. As there is no benchmark like stocks index S&P 500 in Forex, it is difficult to predict the swing.
Globally, the standard beta trading strategy is to build an average of the currencies in the markets adjusted by their $ values and then compare these averages by its standard deviation.
Here is the beta formula:
Beta (USDEUR) = StdDev (USDEUR) / StdDev (Market Average)
The forex beta option formula will help us find currencies that are more volatile than others. We’re looking for currencies outside the standard deviation range.
When to Use Beta Trading Strategy
Whether you are a PRO or a NOVICE in the trading field, but if you don’t want to take a lot of risks, then you can use a simple beta trading strategy and can start your journey from signing up on Confixfinancial.
For example: if you wanted to make a stock portfolio, you need to find stocks with lower beta.
Now making a diversified portfolio with lower beta is not that easy, but you can consider stock like oil, electricity, gas etc in your portfolio. These stocks should have a beta of < 1.
In the forex market, the return rate for holding currencies is given by its interest rates and its interest rate differentials in your portfolio.
In General forex traders take advantage of the difference in interest rates between currencies using the carry trade strategy.
Confixfinancial is a trading platform of the new era where you can do forex trading. They are owned and operated by DKG GROUP LTD registered in the Marshall Islands MD 96960. They also have a training academy where they teach all from Basics to Indicators, Strategies, and even technical analysis.