Correlated Exposure Cap
Also known as: correlated position risk, correlation limit, aggregate exposure rule, combined exposure cap
What is it?
A correlated exposure cap is a rule limiting your combined position size across instruments that move together, so several separate-looking trades cannot add up to one oversized bet. The problem it solves is that a platform counts tickets while the market counts exposure. Long EUR/USD, long GBP/USD and short USD/CHF are three positions on three different instruments, and all three are short the US dollar. At 1% risk each the account shows 1% per trade; on a dollar rally they lose together, and the account takes something close to a single 3% hit.
| Open position | What it really bets on | Risk the platform shows | If the dollar rallies 1% |
|---|---|---|---|
| Long EUR/USD | A weaker US dollar | 1% | Loses |
| Long GBP/USD | A weaker US dollar | 1% | Loses |
| Short USD/CHF | A weaker US dollar | 1% | Loses |
| What the account holds | One dollar bet in three tickets | Reads as 1% per trade | A single 3% loss |
Firms enforce this by capping total lots per base currency, by counting instruments above a correlation threshold - often 0.7 - as one position, or by capping open trades in a named group such as the metals or the indices. The rule matters most because it protects the number the daily loss limit actually reads. A limit of 5% is meant to absorb a bad trade, not one macro release hitting five copies of the same view at once. Read the cap as a definition of how much genuinely independent risk you are allowed to hold, and size to the group rather than to the ticket.
Your capital is at risk. See /risk-warning.
Why it matters: Three trades that all ride the same dollar move are one position in three tickets, and the cap stops that hidden size from breaching your loss limit at once.
Combined risk = risk per trade x positions in the group (when correlation is near +1)
It decides how much genuinely independent risk is open, which is what the daily loss limit measures when a single macro move hits every position at the same time.
Real-world example
Long EUR/USD, long GBP/USD and short USD/CHF at 1% risk each is close to a 3% bet on a weaker dollar, because a single dollar rally puts all three underwater together.
How SignalBots handles it
SignalBots forex signals arrive per pair, so a run of same-direction dollar setups can stack without looking like it - the shared currency, not the ticker, is what to check before taking the third one. See /risk-warning.
Pro tip
Group your open trades by the currency they actually depend on rather than by symbol, and treat that group's combined risk as the number your loss limit sees.
Common pitfalls
Counting three correlated trades as three separate 1% risks. When they move together the account takes one 3% loss, not three unrelated small ones.
Frequently asked questions
How do firms measure correlation?
Most use a rolling correlation over recent daily closes and treat anything above roughly 0.7 as the same position. Others skip the maths and simply cap total lots per base currency or per instrument group.
Does hedging the same pair count as correlated exposure?
A long and a short on one pair is usually handled by a separate hedging rule rather than the correlation cap, because the two legs offset instead of compounding. Check both rules - firms treat hedging very differently.
Are indices and gold covered by the same rule?
Often yes. Major indices move together closely enough that firms group them, and gold is frequently grouped with the dollar side of FX. The instrument list in the rules tells you which groups a firm actually uses.
What happens if I breach the cap?
The usual outcome is that the newest order is rejected before it opens. Some firms instead close the excess position and remove its profit, and a few treat a repeated breach as grounds for closing the account.
How should I size when signals cluster on one currency?
Set a risk budget for the currency group rather than per trade - for example 1% across all dollar-dependent positions - and split it between them. Three setups then share the risk instead of tripling it.
Trading involves substantial risk of loss. Historical and backtested results do not guarantee future performance. Read the full risk warning.
