That's not quite correct. It's not a simple average, it's the geometrical mean of the majors adjusted by a normalization factor.
Indeed all the SC forex indices are calculated as such which makes them the most interesting instruments when it comes to currency trading. You even may calculate your own indices.
If you analyze the behaviour you will be surprised how well and reliable those indices trend. It makes them the perfect instrument for swing trading. The somewhat difficult part is to calculate currency baskets mirroring these indices and the execution. An experienced programer shouldn't have big problems. Once that's done you have perfect synthetic but tradable instruments almost nobody in the market is aware of. Combined with the huge capacity this alone (the unawareness of most market participants) gives you a big exploitable edge.
The following 2 users say Thank You to MT4Survivor for this post:
My experience. I have gone on this route previously . While I do agree there are certain edges in it ( it basically reduce the volatility - pretty much like spreading), it can complicate trading unnecessarily
Very often if one trades a basket of currencies, you will realized it actually mirror one of the major pair with a smoother curve. In forex, we are mostly just trading the USD - no matter which pair we are trading. I ended up going back to trading the pair out right which is mirrored by the basket. because you get into profit faster and with lesser margin. If you profit with the synthetic, you would profit with the pair just with more volatility
Having said that, if one have a huge account and is good with maths and programming, this is definitely one area to look into.
The following user says Thank You to jonc for this post: