This calculator shows how diversification into two uncorrelated currency pairs or forex trading systems affects trading performance. The simulator compares the results of trading two currency pairs or trading systems individually with the results that would have been achieved if they were traded concurrently and the risk capital was divided between them. There are three methods of currency diversification that this calculator applies to: 1) trading one forex trading system on two noncorrelated currency pairs; 2) trading two uncorrelated currency trading systems on one currency pair; 3) trading two noncorrelated currency trading systems - each on one of the two uncorrelated currency pairs. 

The simulation is based on the following assumptions:

1. The long-term accuracy of the trading system (s) (as seen over a few hundred simulated trades) will stay close to the past accuracy, while the short-term accuracy will vary. 

2. The risk and reward parameters will be the same for all the trades, leading to a fixed payoff ratio.

3. The trader will take all the signals that a trading system (s) generates (the trader has a high level of confidence in the system(s)).

4. The outcome of any single trade is absolutely random; the probability that it turns out as a profit or as a loss is controlled by the accuracy of the trading system (s).

Note: This calculator shows that even if the correlation between the instruments traded is equal to zero there can be times when they go through their winning or losing streaks together. This explains why it is not possible to completely eliminate the drawdowns with the help of currency diversification (unless you trade two perfectly negatively correlated forex trading systems). You can still receive better protection from drawdowns by increasing the number of weakly correlated currency pairs and/or trading systems in your portfolio.

The calculator is made up of three parts which are described in detail below:

The controls panel allows you to set the parameters that will guide the simulation. You can change all the cells on the controls panel that are coloured in dark green. Enter your trading system and money management system constraints on the System Controls panel. The Account Controls panel allows you to specify your starting account balance and the target return. The values that you enter on these two controlling panels are used as the inputs for the generation of the trading results shown in the Simulated Account Activity Report, located at the bottom of the page. The information in this report is processed to calculate some of the common trading performance statistics which are displayed on the Performance Panel.

There are three sets of statistics generated - the first two describe the performance of the trading systems/currency pairs when they are traded on their own (in "Trading Only A" and "Trading Only A" columns), the last one represents their combined performance (Trading A & B).

The simulator will automatically recalculate everything each time you change one of the controlling cells or press one of the "Recalculate" buttons on the page. You can view the description of the panel elements by placing your cursor over their names. Alternatively, you can click on some of the elements to visit those parts of the site where they are described in more detail.

This section includes two interactive charts which plot the values of the equity and the drawdown for each of the three scenarios, using the information in the corresponding columns of the Simulated Account Activity Report.