Three Excess Forex Trading Cross Currency
Most traders trade with Major Currency or major currency or major pair. Such as GBP/USD, EUR/USD, USD/JPY and USD/CHF. Also includes AUD/USD and USD/CAD. The trader sees that it is easy to identify the price drivers in each pair. Then there is also a trader who trades with Cross Currency or cross currency or pair cross. Traders who do trading pair cross is usually not a beginner trader. They have experienced trading in major pair and then expand portfolio with pair cross.
Pair cross can be described as a currency pair that does not include US dollars. The reason why they are categorized in a separate group is because recently all non-US dollar currency transactions will require an exchange in US dollars before being converted to the required currency. In fact, most governments have large US dollar reserves. So commodity prices are valued in US dollars and make the US dollar a dominant global currency naturally.
This means that the conversion of Pound Sterling into Japanese Yen requires that Poundsterling be converted first to US dollars and then conversion again to Japanese Yen. This means two transactions for one conversion. The emergence of pair cross groups, able to show less popular currencies can be traded directly against each other and offers some interesting advantages or advantages.
Trading when the market fluctuates
The first advantage for cross-pair trades or non-US dollar pairs is that traders can avoid some sensitive events by the dollar, or at least limit the risk exposure of the dollar. One example is the high risk of trading during the announcement of NFP (Non-farm Payroll) data, either before release or after release. The announcement is released on the first Friday of each month and may result in severe fluctuations and high volatility on major pairs (which are directly traded on US dollars). Since almost all forex markets are affected by these events, pair cross offers a more conservative way to trade news or data so as to avoid the hectic fluctuations that are often experienced on the US dollar pair.
Pair cross able to increase trading opportunities
Trading pair cross in the forex market is able to generate greater opportunities for profitable trading. While the major pair will move in the same direction or opposite each other as the US dollar movements strengthen and / or decrease. While pair cross allows price movement with new pattern in the market because pair cross is not necessary to follow the movement of US dollar. This means there is the potential to make different arrangements in your trading on the market with this low liquidity and the movement is often very large and very profitable for traders looking to find trading opportunities in the pair other than major pairs. Since most of the forex traders will look towards the major pair to identify their trading setup, pair cross can be a very good alternative when the US dollar pair fails to produce significant trading.
Higher interest rates and carry trade
One of the last advantages of trading pair cross is ‘carry trade’. Where traders can take advantage of the higher interest rate differentials given by this currency pair. As a long-term strategy, traders hold long-term currencies in order to benefit from rising in value and also benefit from higher interest rates. A recent example is the Australian dollar that keeps interest rates at 3.5%, raises the demand and value of the Australian dollar.
Pair cross because of its less liquid then there are many pair cross which have spread (high price of buying, bid and selling, ask). Usually spread cross is always larger than spread pair major.
Trading pair cross can also be done when there are differences in conditions of the two countries pair. Sometimes, if the pair cross strengthened, then the major pair contained both currencies could be a significant rise as well. This can be analyzed otherwise.
If you are not used to cross pair trading, it is advisable you only trade in major pairs only. Happy trading ..