Currency Crosses. Summary

Trading Cross Currency Pairs: Expanding Your Opportunities

As you’ve already realized, the Forex market offers countless trading opportunities, and you don’t need to rely solely on predicting the USD’s movements each day. Cross-currency pairs open up additional trading paths, providing new opportunities for success. Here are the key points to keep in mind:

1. More Currency Pairs = More Opportunities

 

Trading cross-currency pairs allows access to a broader selection of pairs, increasing the variety and potential for profitable trades.

 

Example: If major pairs experience sideways movement or heightened volatility due to USD-related news, you can find more stable opportunities in cross pairs like EUR/JPY or AUD/NZD.

2. Smoother Trends and Ranges

 

Unlike major pairs, which are often subject to sharp movements due to USD news, cross-currency pairs tend to exhibit smoother trends and ranges. This makes them ideal for trend-following or range-bound strategies.

3. Leveraging Interest Rate Differentials

 

Trading cross pairs allows you to benefit from the differences in interest rates between currencies.

 

Example: Pairs like AUD/JPY or NZD/JPY are popular among traders because of the high interest rate differentials relative to the yen.

4. Identifying Strong and Weak Currencies

 

Cross pairs help evaluate which currency is stronger or weaker at any given time.

 

How It Works:

Let’s say you see buy signals for both EUR/USD and GBP/USD, but you can only choose one trade. Analyzing EUR/GBP will reveal which currency is stronger, helping you make a more informed decision.

5. Creating Synthetic Pairs

 

If your broker doesn’t offer a specific currency pair, you can create it manually using two major pairs.

 

Example:

To trade EUR/JPY, buy EUR/USD and simultaneously sell USD/JPY. This effectively forms the synthetic pair EUR/JPY.

6. Popular Euro and Yen Crosses

 

Some of the most traded cross pairs include:

•Euro/Yen (EUR/JPY)

•Euro/Pound (EUR/GBP)

•Euro/Swiss Franc (EUR/CHF)

•Pound/Yen (GBP/JPY)

•Australian Dollar/Yen (AUD/JPY)

•New Zealand Dollar/Yen (NZD/JPY)

 

These pairs are popular due to their liquidity and potential for significant price movements.

7. Exercise Caution with Rare Crosses

 

Trading less common currency pairs may involve wider spreads and more volatile price movements. These pairs can offer higher rewards but require stricter risk management.

8. Prioritizing Pairs Based on Analysis

 

Even if you only trade major pairs, cross pairs can help identify which trades are more favorable. For instance, if EUR/GBP is showing a strong downward trend, this could signal euro weakness relative to the pound.

9. The Impact of Crosses on Major Pairs

 

Remember, changes in cross-currency pairs can influence major pairs. For example, a rise in EUR/JPY could slow the decline of EUR/USD, even if the dollar is strengthening.

10. Watch the Pip Value

 

Keep in mind that pip values for cross pairs may differ from those of major pairs. Factor this into your risk management and trade planning.

Conclusion

 

On days when major pairs don’t provide suitable trading opportunities, or if you want to avoid high volatility caused by USD-related news, consider trading cross-currency pairs.

 

These instruments offer additional profit potential, more stable trends, and allow you to diversify beyond USD-based trades.

 

As the saying goes, those who seek, find. Cross-currency pairs in the Forex market are the hidden treasure that can significantly boost your trading potential. 🚀