How to trade cross pairs in Forex?
In the foreign exchange market, there is a huge number of currency pairs. They are divided into two subtypes:
- The main currency pairs are those including the US dollar (USD);
- Currency cross-pairs (or currency crosses) are pairs without the US dollar.
Naturally, traders choose the main currency pairs since it is much easier to predict this type. The main thing is to make an assumption about the price change. The US dollar is affected by a large number of factors. This is the reason the Forex market has a high level of volatility and the prices of currency pairs fluctuate very sharply. However, it is easier to trade the main currency pairs despite all the disadvantages.
Trading the cross-pairs
The most popular cross-pairs are those with the euro. It is obvious because this currency is the second most popular in the world. Traders most often choose the following currency crosses: EUR/CHF, EUR/GBP, and EUR/JPY. The majority of the cross-pairs lovers trade these pairs.
In addition to the euro cross-pairs, cross-pairs with the Japanese yen are also popular. For example, many traders prefer to work with: CAD/JPY, NZD/JPY, and GBP/JPY. These pairs are characterized by low liquidity, but they can bring some profit due to good technical and fundamental analysis. This is a stable profit, however, it is quite small. One has to be careful opening deals with these currency pairs, because swaps will be larger when the order is moved to the next day. The main currency pairs do not have that large swaps.
Cross-currency trading is characterized by high volatility due to high volatility of this market. However, it is possible to make an accurate analysis and get a big profit by forecasting both currencies of the pair. To do it, you need to conduct both technical and fundamental analysis.
In fact, the main currency is the US dollar in the first type of currency pairs. It determines the price of the currency pair. However, both currencies are equivalent and they have the same effect on the price fluctuations in currency crosses. One can get profit trading the currency crosses due to accurate news that bring changes to both currencies of the pair.
How to trade the foreign currency crosses?
Trading cross-currency pairs is not an option for everyone. If you are a beginner, it will be better to try the main currency pairs for trading in the foreign exchange market. When you learn the basics of trading, both types of analysis, and develop your strategies, you can start trading the currency crosses. Such currency pairs are more often used by professional traders, who have developed their trading strategies for currency crosses for more than a year.
All in all, if you don’t feel confident of trading the currency crosses, it is better to start with the main currency pairs gradually approaching the most ex otic and specific pairs.