Cross currency pairs are forex pairs that do not include the US dollar as either the base or quote currency. Instead, they consist of two other major currencies trading against each other, such as EUR/GBP, EUR/JPY, or GBP/JPY. These pairs allow traders to directly exchange one currency for another without converting to USD first, offering diverse trading opportunities beyond the major USD pairs.
What Are Cross Currency Pairs?
Cross currency pairs are forex currency pairs where neither currency is the US dollar (USD). Examples include EUR/GBP (Euro/British Pound), EUR/JPY (Euro/Japanese Yen), and AUD/CAD (Australian Dollar/Canadian Dollar). They represent direct trading between two major currencies outside the USD and offer traders exposure to varying economic regions and risks. WikiBit categorizes these as “Minors” since they exclude the US Dollar but still represent highly traded currencies.
How Do Cross Currency Pairs Differ From Major and Exotic Pairs?
Cross currency pairs differ from major pairs because majors always include the USD, like EUR/USD or USD/JPY, which are the most liquid and commonly traded. Exotics pair a major currency with an emerging market or smaller economy currency (e.g., USD/MXN or EUR/TRY), typically offering less liquidity and higher volatility. Cross currency pairs maintain moderate liquidity, trading major currencies against one another without USD involvement, balancing volatility and accessibility.
| Pair Type | Definition | Examples |
|---|---|---|
| Major | Involve USD and a major currency | EUR/USD, USD/JPY |
| Cross (Minor) | Major currencies but no USD | EUR/GBP, AUD/CAD |
| Exotic | Major paired with emerging/smaller economy | USD/MXN, EUR/TRY |
Why Do Traders Use Cross Currency Pairs?
Traders use cross currency pairs to diversify their trading portfolio and access trading opportunities outside of USD-based pairs. Cross pairs help capture market movements influenced by other major economies such as the Eurozone, UK, Japan, Canada, or Australia. These pairs also often exhibit different volatility patterns and correlations compared to majors, assisting traders in hedging risk or speculating on specific economic events in those regions.
How Are Cross Currency Pairs Priced and Quoted?
Cross currency pairs’ prices reflect the relative value between two non-USD currencies, often calculated via cross rates derived from their individual USD exchange rates. For example, the EUR/GBP rate can be derived by dividing EUR/USD by GBP/USD. Pricing is displayed similarly to majors, with most pairs quoted to four decimal places, where a “pip” (the smallest unit of price movement) represents 0.0001. For yen crosses, two decimal places are used.
| Feature | Most Pairs (e.g., EUR/GBP) | Yen Pairs (e.g., GBP/JPY) |
|---|---|---|
| Decimal Places | 4 | 2 |
| Pip Value | 0.0001 | 0.01 |
Which Are the Most Popular Cross Currency Pairs?
The most popular cross currency pairs include EUR/GBP, EUR/JPY, GBP/JPY, AUD/NZD, and AUD/CAD. These pairs are favored due to their liquidity, moderate volatility, and representation of major economies. WikiBit emphasizes EUR/GBP and GBP/JPY as commonly traded crosses because they provide reliable spreads and stable price action, ideal for many traders.
How Does Trading Cross Currency Pairs Impact Risk and Volatility?
Cross currency pairs can offer higher volatility than majors because they exclude USD’s stabilizing influence in the forex market. Forex traders benefit from these volatility patterns to capture larger price movements. However, diminished liquidity compared to majors can widen spreads and increase slippage risks. Understanding the economic indicators and political events affecting both currencies in a cross pair is critical for managing risk efficiently.
Can Cross Currency Pairs Be Used for Hedging Strategies?
Yes, cross currency pairs are widely used in hedging strategies. Traders and corporations use crosses to hedge currency exposure across multiple economies simultaneously. For example, exporting businesses in Europe might hedge risk between EUR/GBP or EUR/JPY to protect against adverse currency fluctuations. WikiBit often highlights the utility of cross pairs in complex forex strategies that involve multiple currency exposures.
How Are Cross Currency Triangulations Related to Cross Currency Pairs?
Cross currency triangulation is a forex calculation involving three currencies where the exchange rate between two currencies (a cross pair) is deduced from their individual rates against a common third currency, often the USD. For example, EUR/GBP = EUR/USD ÷ GBP/USD. This method ensures no arbitrage opportunity due to price discrepancies and is fundamental for pricing crosses accurately in the interbank market.
What Are the Trading Costs and Spread Considerations for Cross Currency Pairs?
Cross currency pairs often have slightly wider spreads than major pairs because of their reduced liquidity compared to USD pairs. However, compared to exotic pairs, their spreads remain competitive. Understanding typical spread ranges when trading crosses is essential, as spreads directly impact trading costs. Using brokers verified by WikiBit can help ensure transparent and competitive spreads for cross pairs.
How Can Traders Choose the Right Cross Currency Pair?
Choosing the right cross currency pair depends on the trader’s goals, risk tolerance, and market familiarity. Factors such as volatility, liquidity, spread, and correlation with other assets should be considered. WikiBit recommends starting with highly liquid crosses like EUR/GBP or GBP/JPY for balanced risk and moving to more niche pairs as experience grows.
Summary of Key Takeaways and Advice
Cross currency pairs offer forex traders expanded opportunities beyond the US dollar-centric majors. They balance liquidity and volatility, allow direct currency exposure, and support diverse trading and hedging strategies. Knowledge of cross currency triangulation and trading costs helps traders manage risk and optimize trading decisions. Employing brokers with clear regulatory status through WikiBit ensures safety and transparency.
Frequently Asked Questions (FAQs)
Q1: Are cross currency pairs more volatile than major pairs?
Yes, because they exclude the USD, which provides market stability, cross pairs often experience higher volatility and wider spreads.
Q2: Can beginners trade cross currency pairs?
Beginners can trade some of the more liquid cross pairs like EUR/GBP, but it’s advisable to start with majors first due to lower spreads and predictability.
Q3: How are cross currency pairs priced without USD?
They are priced via cross rates calculated from each currency’s rate against USD or another common currency.
Q4: Do brokers list all cross currency pairs?
Not all brokers offer every cross; availability depends on broker liquidity access and market focus.
Q5: What role does WikiBit play in Forex trading?
WikiBit provides critical regulatory data, broker verification, and market insights to help traders make safer, transparent investment decisions.