Education Forex Trading Trading Strategies

What are cross currency pairs, and should I trade them?

You’ll likely come across the term “cross currency pairs when you’re trading currencies.” But what are they, and should you trade them?

What are cross currency pairs?

A cross currency pair is any two currencies that are not the same. For example, the euro (EUR) and the British pound sterling (GBP) cross currency pairs. When you trade a cross currency pair, you’re essentially trading one currency for another.

Why trade cross currency pairs

There are a few reasons. First, when you trade a cross currency pair, you’re taking advantage of movements in the currencies relative to each other. If the EURO strengthens against the GBP, you could make a profit on your trade.

Second, trading cross currency pairs can be less risky than trading other currencies pairs. When you trade cross currency pairs, you’re hedging your bets against movements in the underlying currencies.

For example, let’s say you’re long the EUR/USD and short the USD/CHF. If the EURO weakens against the USD, you’ll make a loss on your long EUR/USD trade.

However, since you’re also short the USD/CHF, you’ll offset some loss with gains on your short USD/CHF trade.

In other words, by being long one currency and short another, you’re effectively hedging your bets.

So should you trade cross currency pairs?

It depends on your goals and risk tolerance. If you’re looking to take advantage of movements in the currencies relative to each other, trading cross currency pairs can be a profitable strategy.

However, if you’re looking for less risk, trading cross currency pairs may not be the best option.

The best cross currency pairs to trade?

There isn’t a definitive answer, as the best cross currency pairs to trade will vary depending on the current market conditions.

However, some of the most popular cross-currency pairs include:

  • EUR/GBP
  • USD/CHF
  • AUD/CAD
  • NZD/JPY
  • EUR/JPY

Benefits

Some of the benefits of trading cross currency pairs include:

  • You can take advantage of movements in the currencies relative to each other.
  • Trading cross currency pairs can be less risky than trading other currencies pairs.
  • You’re effectively hedging your bets when you trade a cross-currency pair.
  • You have more options when it comes to choosing which pair to trade.

Risks

Risks with trading cross currency pairs are:

  • Cross-currency pairs may be more volatile than other currency pairs.
  • You may need to put up more collateral when trading a cross-currency pair.
  • When trading a cross-currency pair, you may incur additional costs, such as commissions and fees.

Forex strategies that work best when trading cross currency pairs and why?

Some forex strategies that work best when trading cross currency pairs include:

The carry trade

This strategy involves selling a currency with a low-interest rate and using the proceeds to buy a currency with a higher interest rate. It allows you to capitalize on the difference in interest rates between the two currencies.

Trend following

This strategy involves taking a position in the overall trend direction. For example, if the EUR is trending upwards against the GBP, you would take a long position in the EUR/GBP pair.

Range trading

This strategy involves taking positions at or near support and resistance levels. When the market is range-bound, this can be a profitable strategy.

Which markets are best for cross-currency trading? The foreign exchange (forex) market is the best market for trading cross currency pairs. The forex market is 24 hours a day, five days a week, and offers traders a variety of trading opportunities.

What influences the value of cross-currency pairs?

When two currencies are traded against each other, this is known as a ”currency pair”. Various factors: influence the value of a currency pair

  • The economic outlook of the two countries
  • Political stability in the two countries
  • The relative strength of their respective economies

Now that you know more about cross-currency trading evaluate if it might be something that you would want to trade. And remember, if you are ever unsure, ask a professional that has traded cross-currency trades before.

 

You’ll likely come across the term “cross currency pairs when you’re trading currencies.” But what are they, and should you trade them? What are cross currency pairs? A cross currency pair is any two currencies that are not the same. For example, the euro (EUR) and the British pound sterling (GBP) cross currency pairs. When…

You’ll likely come across the term “cross currency pairs when you’re trading currencies.” But what are they, and should you trade them? What are cross currency pairs? A cross currency pair is any two currencies that are not the same. For example, the euro (EUR) and the British pound sterling (GBP) cross currency pairs. When…