Diversification

What does diversification mean?

Spreading the risk of a portfolio across several securities is known as diversification. This means that the trader is speculatively invested in different securities (shares or forex) that correlate with each other as little as possible at the same time. This spreads the risk across several assets in order to be invested as broadly as possible in the market. For example, if a trader opens a short position in EUR/JPY, it does not make sense from the point of view of diversification to also open a short position in the CHF/JPY currency pair, as the two currency pairs move fairly identically to each other.