In Funded7’s New Risk Management Framework, highly correlated instruments (assets that move together) are grouped into “Risk Buckets.” This system is designed to prevent “Risk Concentration,” where you might think you are diversified, but are actually taking the exact same risk across multiple pairs.
1. Bucket Rules #
Limits (Risk Caps) #
If the Total Risk within one bucket exceeds the limit below, it is a “Violation.” The limit depends on your Account Tier:
- Pro Account: 3.0%
- Silver Pro: 2.0%
- Bronze Pro: 1.0%
Calculation (Netting & Summing) #
Risk is not just added up blindly. We account for “Hedging” effects.
- 1. Netting within Instrument: Longs and Shorts on the same specific pair are netted first (Long – Short).
- 2. Summing within Bucket: Then, the net risks of all instruments in the same bucket are summed up.
Example of Violation (Risk Accumulation)
- Account: Pro Account (Limit 3.0%)
- Position A: EUR/USD Long (Risk 1.6%)
- Position B: GBP/USD Long (Risk 1.5%)
Verdict: Both belong to “Bucket 1.” The total risk is 1.6% + 1.5% = 3.1%. This exceeds the limit (3.0%) -> “Violation” (Reason: Although the pair names are different, both positions represent a “Short USD” trade and move almost identically. The risk is too concentrated.)
2. Forex Buckets #
Bucket 1: USD Long Correlation (+84% ~ +92%) #
These pairs have a very strong positive correlation and tend to move in the same direction.
- EUR/USD, GBP/USD, NZD/USD, AUD/USD (Note: Shorting these pairs is effectively taking a Long USD position)
Bucket 2: USD Short Correlation (+67% ~ +85%) #
These are USD pairs that tend to move inversely to Bucket 1 (rising when USD is strong).
- USD/JPY, USD/CHF, USD/CAD
Bucket 3: EUR Crosses #
- EUR/GBP, EUR/CHF, EUR/CAD, EUR/AUD, EUR/NZD
Bucket 4: JPY Crosses (+74% ~ +96%) #
These tend to move together during Yen weakness/strength phases.
- GBP/JPY, EUR/JPY, AUD/JPY, CAD/JPY, CHF/JPY, NZD/JPY
Bucket 5: GBP Crosses #
- GBP/CHF, GBP/CAD, GBP/AUD, GBP/NZD
Bucket 6: Commodity Crosses #
- AUD/CAD, AUD/NZD, CAD/CHF, NZD/CAD, NZD/CHF, AUD/CHF
Bucket 7: USD Exotics #
- USDCNH, USDCZK, USDHKD, USDHUF, USDMXN, USDNOK, USDPLN, USDSEK, USDSGD, USDZAR
Bucket 7: USD Exotics #
- USDCNH, USDCZK, USDHKD, USDHUF, USDMXN, USDNOK, USDPLN, USDSEK, USDSGD, USDZAR
Bucket 8: EUR Exotics #
- EURCZK, EURHKD, EURNOK, EURPLN, EURSEK
Bucket 9: Other Exotics #
- AUDSGD, SGDJPY
3. Other Assets (Metals, Indices, Crypto) #
Bucket 10: Precious Metals (+88%) #
These have strong correlation (+88% or higher).
- XAU/USD (Gold), XAG/USD (Silver), XPD/USD (Palladium), XPT/USD (Platinum)
Bucket 11: Crude Oil (+95%) #
- USOIL (WTI), UKOIL (Brent)
Bucket 12: Natural Gas #
(Managed separately as it moves differently from Oil)
- NATGAS
Bucket 13: US Large Cap Indices (+90% ~ +95%) #
These have very strong linkage. Be careful when longing S&P500 and NASDAQ simultaneously.
- US500 (S&P), US30 (Dow Jones), US100 (NASDAQ)
Bucket 14: US Small Cap #
- US2000 (Russell 2000)
Bucket 15: European Indices #
- GER40 (DAX), UK100 (FTSE), FRA40, EU50, ESP35, ITA40, SWI20
Bucket 16: Asia-Pacific Indices #
- JPN225 (Nikkei), HK50 (Hang Seng), AUS200
Bucket 17: Major Crypto (+90%) #
Bitcoin and Ethereum are managed in the same bucket due to high correlation (+90%).
- BTCUSD, ETHUSD
Bucket 18: Altcoins #
- XRPUSD, LTCUSD, SOLUSD, BNBUSD, BCHUSD
Bucket 19: Dollar Index #
- USDIDX
