Artificial Pair Currency Cross Trading Method
Artificial Currency Cross Pair! “Hmm like imitation using artificial words”. Yes, indeed, like the title, currency cross pair is indeed something we make, unlike currency cross pair that has been provided by the broker.
And the artificial currency cross pair is usually made by hedge funds or big players (ie those who have very large funds) because the desired currency cross pair liquidity is very low.
How to Make an Artificial Pair Currency Cross
Suppose there is a large institution wanting to buy GBP / JPY but because the market is very illiquid, the institution cannot execute trading orders. So that you can still buy GBP / JPY, the institution must buy GBP / USD and USD / JPY.
This method is a very smart way for players the size of a hedge fund or large institution that has a lot of money. But this is an act that is less intelligent for our size players who belong to retail groups.
How come? because by making currency cross pair we will be subject to a large spread by our broker. Whereas the big players are most likely due to being forced to do this due to illiquid market conditions so that all the funds that they want to transact cannot be absorbed by the market.
Well, besides the spread as a trading fee, there are also things that need to be considered, namely the margin arrangement because you open two positions, namely BUY GBP / USD and USD / JPY for GBP / JPY, so your margin will be divided by two. So you also have to have sufficient funds so that the margin call does not occur.
So trading with artificial currency cross pairs is not suitable for small players like us.
Today many brokers provide currency cross pair with very competitive (low) spreads and we do not have to open two order positions to buy / sell the desired currency cross pair because it is available. Because by doing this we can save trading costs and have enough margin so that the margin call does not occur.