Cross Currency Pairs: What You Need to Know

Welcome to our comprehensive guide on cross currency pairs! In this article, we will cover everything you need to know about cross currency pairs, including what they are, how they differ from major currency pairs, and how to trade them effectively.

What Are Cross Currency Pairs?

Cross currency pairs are currency pairs that do not involve the US dollar. In other words, they are currency pairs in which neither of the two currencies is the US dollar. For example, EUR/JPY (Euro/Japanese Yen) is a cross currency pair.

How Do Cross Currency Pairs Differ from Major Currency Pairs?

Major currency pairs are those that include the US dollar, such as EUR/USD, GBP/USD, and USD/JPY. Cross currency pairs, on the other hand, do not involve the US dollar. The main difference between major currency pairs and cross currency pairs is that major currency pairs are more liquid and have tighter spreads, making them easier to trade.

Why Trade Cross Currency Pairs?

There are several reasons why traders may choose to trade cross currency pairs. One reason is that cross currency pairs can offer more opportunities for diversification, as they allow traders to take advantage of different economic conditions in different countries. Additionally, trading cross currency pairs can also be a way to hedge against currency risk.

How to Trade Cross Currency Pairs

Trading cross currency pairs involves similar steps to trading major currency pairs. Traders can use technical analysis, fundamental analysis, and sentiment analysis to make informed trading decisions. It is important to pay attention to economic indicators and news releases that may affect the currencies in the cross currency pair.

FAQs

Q: What are some common cross currency pairs?

A: Some common cross currency pairs include EUR/JPY, GBP/AUD, and CAD/JPY.

Q: Are cross currency pairs riskier to trade than major currency pairs?

A: Cross currency pairs can be more volatile than major currency pairs, but with proper risk management and analysis, traders can effectively trade them.

Q: How can I determine the value of a cross currency pair?

A: The value of a cross currency pair is determined by the exchange rate between the two currencies in the pair. Traders can use platforms like MetaTrader to monitor and analyze cross currency pairs.

References

1. “Cross Currency Pairs Explained” – Investopedia

2. “Understanding Cross Currency Pairs” – DailyFX

3. “Trading Cross Currency Pairs” – FXCM

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