Diversifying trades across different currency pairs helps reduce risk by spreading exposure across multiple markets instead of relying on a single trade or currency. If you only trade one pair, such as EUR/USD, your entire position is vulnerable to a single market movement. By trading uncorrelated or negatively correlated pairs, you can balance potential losses in one trade with gains in another. However, diversification should be strategic—trading too many pairs without proper analysis can lead to overtrading and poor risk management.