What are Currency Crosses in Forex Trading?
These are the Forex pairs that do not have USD and involve cross-currency transactions.
Examples of Currency Crosses:
- EURJPY
- GBPJPY
- EURGBP
- AUDJPY
- GBPCHF
- EURCHF
- CHFJPY
To buy EURJPY currency cross - you first buy EURUSD and then buy USDJPY.
This means to buy EURJPY currency cross you will have traded two other major currency pairs. This is why the majors have large trade turnover volumes because all minors will involve these 2 major currency pairs.
This is because in the forex market you cannot buy or sell the EUR directly for the JPY you have to convert EUR into USD then using the USD you have to buy JPY. This is why these currency pairs are called crosses because of the cross transactions using USD. This is also why USD takes up 85% of all trade transactions in the forex market, because it is the base currency of all exchange forex transactions.
To buy GBPJPY you first buy GBPUSD and then buy USDJPY
This is also why the spread of these currency crosses is higher than that of the major pairs, because you will be transacting two transactions simultaneously when buying or selling these crosses.
Currency crosses are also not very liquid and therefore are not highly traded by most investors, this is why these Forex currencies tend to have less predictable movements because their volumes of transaction turnover is not very high.
