No Result
View All Result
Markets
EUR/USD GBP/USD USD/JPY AUD/USD NZD/USD XAU/USD
Central Banks
FED ECB BoE BoC BoJ SNB RBA RBNZ
Brokers
Wire Transfer Visa/Mastercard Paypal Fasapay Skrill Bitcoin
FCA Cysec CFTC NFA FSA
Forex Guide
Beginners Basics Technicals Fundamentals
Education
Forex Articles Forex School Forex Terms
Forex Strategies
5 Minutes 15 Minutes 30 Minutes 1 Hours 4 Hours Daily
Resources
Indicators Forex Ebooks MT4 MT5
Trading Tools
Live Charts Economic Calendar Fibonacci Calc Pivot Points
Mira FX
  • Markets
  • Education
  • Central Banks
  • Resources
    • Ebooks
    • Indicators
      • MT4 Indicators
      • MT5 Indicators
  • Brokers
    • Deposit Bonuses
    • No-Deposit
    • Demo Contest
    • Live Contest
    • Brokers News
  • Tools
  • Login
  • Deposit Bonuses
  • No-Deposit Bonuses
  • Demo Contest
  • Live Contest
  • Brokers News
  • Brokers
Mira FX
  • Markets
  • Education
  • Central Banks
  • Resources
    • Ebooks
    • Indicators
      • MT4 Indicators
      • MT5 Indicators
  • Brokers
    • Deposit Bonuses
    • No-Deposit
    • Demo Contest
    • Live Contest
    • Brokers News
  • Tools
Mira FX
  • Markets
  • Education
  • Central Banks
  • Resources
  • Brokers
  • Tools
  Latest
How To Install Metatrader 5 Custom Indicators May 9, 2022
Next
Prev

Currency Cross Pairs: How to Trade Them?

User by User
September 30, 2020
in Strategies
Reading Time: 5 mins read
ShareTweetShareSendShareSend

Do you know that opportunities to earn money are not limited by trading your favorite EUR/USD, GBP/USD and USD/JPY? Furthermore, a currency pair may be formed without the US dollar? In this article, we are going to introduce you to the so-called “currency cross pair”. You will find out the special features of these pairs and learn how to trade them and to avoid mistakes.

What is a currency cross pair?

After World War II ended and the gold standard crashed, most currencies were quoted against the US dollar, which was fixed to gold. When a person wanted to exchange a sum of money into a different currency, he needed to convert that money to the USD and then convert it into the desired currency. Luckily, the currency cross pairs were invented. They allow to bypass the process of converting currency into the US dollars instead you convert it to the desired currency straight away.

Generally speaking, a currency cross pair (cross currency, cross) is a pair of currencies in the Forex market, which does not include the USD.

With FBS, you can trade AUD/CAD, EUR/GBP, CHF/JPY, EUR/NZD, and even more cross pairs!

How currency cross rates are calculated?

It’s important to understand how these types of pair are created.

Let’s consider the EUR/GBP pair. We need to look at the bid/ask price for GBP/USD and EUR/USD to calculate the bid price for EUR/GBP.

Why do we choose these pairs? That is because they have the USD as the quote currency in them.

GBP/USD: 1.2887 (bid) / 1.2889 (ask)

EUR/USD: 1.1286 (bid) / 1.1287 (ask)

To calculate the bid rate for EUR/GBP we need to divide the base currency bid by the quote currency ask:

EUR/GBP (bid) = 1.1286/1.2889 = 0.8756

For the ask rate, we need to divide the base currency ask by the quote currency bid.

EUR/GBP (ask) = 1.1287/1.2887= 0.8758

Seems tough? Most brokers, including FBS, calculate the cross rates and the size of the spread for you automatically. Thus, you don’t need to learn the formula above. Yay!

What currency cross pairs you may choose?

Cross currency pairs may be divided into three groups.

First group – cross pairs with commonly traded majors (the EUR, the JPY, and the GBP). They have good liquidity, which may be compared to the major currency pairs. It shows that many traders trade them and the chances of an unexpected jump of the price are low. You can trade, for example, EUR/GBP, GBP/JPY, CHF/JPY.

The second group combines so-called “obscure” currency crosses as very few traders trade them. They don’t have the EUR, the JPY or the GBP in them. This fact makes the movements of their price extremely volatile. Let’s look at the chart of NZD/CAD. We can see the long bullish and bearish candlesticks. These big spikes create an additional challenge for traders while determining the next movement of the price. You need to be careful while trading them and do a proper analysis.

Finally, there are exotic cross currency pairs. They have an emerging market currency in them. With FBS you can trade such exotic crosses as CHN/JPY, EUR/TRY, and EUR/CNH. As with the second group, you need to be careful while trading them and don’t forget to use stop losses.

Why do you need to trade the currency cross pairs?

They allow you to trade fundamentals easier. If the important release for the EUR pushes the EUR up and the USD is strong, it may result in the flat price action of EUR/USD. Currency cross pairs may help you to take advantage of the EUR But it is very important to follow all political and economic changes in the countries of the chosen currencies. Disinformation may lead you to losses.

On the picture below the weaker releases for the US dollar and the positive news for the EUR shows the equal balance of powers between bulls and bears and makes the pair trade sideways. As a result, it is harder to determine and follow the current trend.

Now let’s look at the EUR/GBP chart. We know that the British economy struggles amid the Brexit uncertainties. That is why the EUR is stronger than the GBP. We see that the uptrend for the pair here is easier to determine, as the EUR pushes the pair higher. That is why we can take advantage of the strong release for the Eurozone.

  • You can trade interest rate differentials (carry trade strategy)
    You can earn money by selling currencies with a lower interest rate against currencies whose country has a higher interest rate. This strategy is known as a carry trade strategy. Learn how to apply it in your trading from our article.
  • They help you to trade the major currencies
    Currency crosses can help you to identify the relative strength of each major currency pair.

Imagine, that you see the buy signal for both EUR/USD and GBP/USD, but you can trade only one currency pair. The analysis of EUR/GBP cross will help you to choose the perfect one for a long position. If the trend for the pair is bullish, it shows that the EUR is relatively stronger than the GBP at the moment. So you need to buy EUR/USD instead of GBP/USD.

Since the GBP is weaker than the EUR, if it strengthens against the USD, it will strengthen less than the euro. As a result, EUR/USD would rise more extensive than the British pound when the USD weakens.

Example

On the charts of EUR/USD and GBP/USD below, we noticed that MACD formed a bullish divergence, which may be a good signal to buy. But we need to choose only one pair.

We decide to check EUR/GBP for other clues. The pair is moving upwards. That means that the EUR is stronger than the British pound. If the currency strengthens, you would make more pips while trading EUR/USD, than GBP/USD.

Conclusion

Now you see that trading cross currency pairs is not just a way for a trader to look more “hipsterish”. They help you to fully understand any moves in the market, provide you with an opportunity to trade the currencies directly against each other and offers you more chances to earn money.

Channel: FBS - Broker | Visit
Foundation: 2009 | Regulation: CySEC, IFSC | Min. Deposit: $5
Tags: D1FBSH1
ⓘ Some contents provide links to third-party news and current events as a convenience to you. We have not reviewed and don't endorse the contents of these sites. Please always do your own research. Mira FX does not endorse any companies, products or services which are represented on this article. Mira FX is not liable for any damage or loss, including but not limited to, any loss of investment, which may be based either directly orindirectly on the use of or reliance on such information. Before deciding whether or not to take part in foreign exchange or financial markets or any other type of financial instrument, please carefully consider your investment objectives, level of experience and risk appetite.

Related Posts

Pin Bar Scalping Strategy

Pin Bar Scalping Strategy

SUSILO SM | Candlestick - M5
Fundamentals of Money Supply

Fundamentals of Money Supply

Mira Team - July 27 | Fundamentals
Forex Basics : Two Questions You Need To Answer

Forex Basics : Two Questions You Need To Answer

Mira Team - July 27 | Beginner
How to Trade with Fractals

How to Trade with Fractals

MIRA TEAM - JAN 25 | TECHNICAL
Multinational Corporations Role in Foreign Exchange Markets

Multinational Corporations Role in Foreign Exchange Markets

Mira Team - July 29 | Basic
USDCHF

Introduction The USD/CHF Pair

JOSHUA - Feb 22 | Fundamentals

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Advertisement

Latest

How To Install Metatrader 5 Custom Indicators

How To Install Metatrader 5 Custom Indicators

MIRA TEAM - May 9 | Basic

Gross Domestic Product, First Quarter 2022

APR 28, 2022 | USD

The pound reacts to rising inflation like EM currency

Apr 13, 2022 | GBP/USD

NZD falls despite RBNZ rate hike

Apr 13, 2022 | NZD, RBNZ

GBP/USD is still falling and slowly approaching the lows

Apr 12, 2022 | GBP/USD

IMF: Dangerous Global Debt Burden Requires Decisive Cooperation

Apr 11, 2022
Advertisement
  • About
  • Advertising
  • Disclaimer
  • Contact
  • Privacy Policy
  • Terms & Conditions
Risk Warning: All information on this website, including any opinions, articles, charts, prices, news, data, Buy/Sell signals, reviews, research and analysis is provided as general market commentary and does not constitute any investment advice. Mira FX is not liable for any damage or loss, including but not limited to, any loss of investment, which may be based either directly orindirectly on the use of or reliance on such information. Before deciding whether or not to take part in foreign exchange or financial markets or any other type of financial instrument, please carefully consider your investment objectives, level of experience and risk appetite. Do not invest more money than you can afford to lose. Note that the high level of leverage in forex trading may work against you as well as for you. Please seek advice of an independent financial advisor if you are not fully aware about the risks associated with foreign exchange trading. Forex trading on margin involves considerable exposure to high risk, and may not be suitable for all investors. Mira FX does not endorse any companies, products or services which are represented on Mira-FX.com The information on this website is subject to change without notice.
No Result
View All Result
  • About
  • Advertising
  • Central Banks
  • Contact
  • Disclaimer
  • Forex Brokers
    • Regulator
  • Index
    • Daily Forex Strategy
    • Forex Ebooks | Language: English
    • H1 Forex Strategy
    • H4 Forex Strategy
    • M15 Forex Strategy
    • M30 Forex Strategy
    • M5 Forex Strategy
  • Markets
    • EUR/JPY
  • Mira FX
  • Privacy Policy
  • Terms & Conditions
  • Tools
    • Economic Calendar
    • Fibonacci Retracement Calculator
    • Live Charts
    • Pivot Point Calculator

© 2022 Mira FX | Copying of materials is allowed only with the presence of an active link to a source page.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In