What Are Cross-Currency Pairs? Beginner’s Forex Guide

A cross-currency pair refers to a forex pair that does not include the US dollar (USD). Unlike major pairs such as EUR/USD or USD/JPY, cross pairs involve the direct exchange between two non-USD currencies, such as EUR/GBP, GBP/JPY, or AUD/NZD. These pairs allow traders to bypass the USD as an intermediary, improving efficiency and reducing transaction costs.

Types of Cross-Currency Pairs

Cross pairs are commonly grouped by economic region or currency characteristics:

• Euro Crosses: EUR/GBP, EUR/CHF, EUR/JPY
• Yen Crosses: GBP/JPY, AUD/JPY, EUR/JPY
• Commodity Crosses: AUD/NZD, AUD/CAD, NZD/CAD

How Are Cross Rates Calculated?

Cross rates are usually derived from the exchange rates of each currency against the USD. For example:

GBP/JPY = GBP/USD × USD/JPY

If GBP/USD = 1.5000 and USD/JPY = 150.00, then GBP/JPY = 225.00.

Common Applications

Cross pairs are widely used in international trade, currency speculation, carry trades, and hedging strategies. For instance, a EUR/GBP trade can express views on the Eurozone vs the UK economies without needing to involve USD.

Benefits and Risks

Cross-currency pairs offer benefits such as lower transaction costs, more trading options, and access to regional trends. However, they may come with lower liquidity, wider spreads, and higher sensitivity to dual economic factors, making risk management crucial.

Conclusion

Cross pairs are essential tools in the modern forex market. While they present attractive opportunities, beginners should first understand how they are priced and how they behave compared to major pairs. Proper analysis and awareness of economic drivers are key to trading them effectively.

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