Community Forex Questions
What is cross currency?
A cross currency refers to a currency pair that does not include the U.S. dollar (USD). In the forex market, currency pairs involving the USD are called major pairs, such as EUR/USD or USD/JPY. However, when a pair like EUR/GBP (Euro/British Pound) or AUD/JPY (Australian Dollar/Japanese Yen) is traded, it is termed a cross currency pair.
Cross currencies are crucial for traders and investors who wish to diversify their portfolios or hedge against currency risk without involving the USD. These pairs can offer unique trading opportunities as their price movements are influenced by the relative strength of the two currencies involved, rather than being tied to the USD.
The existence of cross currencies also facilitates smoother and more direct trade and investment between countries with different currencies. For instance, a European investor looking to invest in Japanese assets can directly trade EUR/JPY, avoiding the need to first convert euros to dollars and then dollars to yen, which would incur additional transaction costs and exposure to USD fluctuations.
Moreover, cross currency pairs can be more volatile than major pairs due to lower liquidity and higher sensitivity to regional economic and political events. Understanding these pairs requires a keen awareness of the economic indicators and geopolitical factors affecting the respective currencies.
Cross currencies are crucial for traders and investors who wish to diversify their portfolios or hedge against currency risk without involving the USD. These pairs can offer unique trading opportunities as their price movements are influenced by the relative strength of the two currencies involved, rather than being tied to the USD.
The existence of cross currencies also facilitates smoother and more direct trade and investment between countries with different currencies. For instance, a European investor looking to invest in Japanese assets can directly trade EUR/JPY, avoiding the need to first convert euros to dollars and then dollars to yen, which would incur additional transaction costs and exposure to USD fluctuations.
Moreover, cross currency pairs can be more volatile than major pairs due to lower liquidity and higher sensitivity to regional economic and political events. Understanding these pairs requires a keen awareness of the economic indicators and geopolitical factors affecting the respective currencies.
A cross currency refers to a pair of currencies traded in the foreign exchange (Forex) market that does not involve the U.S. dollar. Traditionally, most currencies were first converted to USD, then to the desired currency. However, cross currency pairs streamline this process by directly exchanging one non-USD currency for another, such as EUR/JPY (Euro/Japanese Yen) or GBP/CHF (British Pound/Swiss Franc).
These pairs are crucial for traders who want to speculate on exchange rates between currencies other than the dollar, offering additional opportunities and diversity in the Forex market. Cross currency rates are derived from the individual exchange rates of the currencies involved against the U.S. dollar, making them slightly more complex to calculate.
These pairs are crucial for traders who want to speculate on exchange rates between currencies other than the dollar, offering additional opportunities and diversity in the Forex market. Cross currency rates are derived from the individual exchange rates of the currencies involved against the U.S. dollar, making them slightly more complex to calculate.
May 28, 2024 02:04