It is a fact that trading the forex (FX) markets gives you an almost unlimited number of trading opportunities.
And why not? As the largest market in the world regarding trading volume (approximately US$5.3 trillion worth of daily transactions), the FX market is also the most liquid. Thismeans you could almost always get in and out of a trade at any time you like.
But one thing to remember when trading the FX market is that not all currencies are created equal.
Some currencies are traded more frequently than others. Therefore, it is important you know the characteristics of the currencies you’re trading to optimise your trading strategy.
In this post, we will evaluate FX crosses – those currency pairs which don’t involve the US dollar.
But before we get into more details, let’s have a look at the three main groups of currency pairs. These are:
Forex Majors – these are the currency pairs involving the US dollar. This means all trades are done with the US dollar on the other side of the trade. It is estimated more than 85 percent of the total FX trades globally involve the US dollar. The US Dollar is the most dominant among all currencies. Here are the seven (7) major forex pairs:
Forex Crosses – these are currency pairs that are traded without the US dollar. This means you can trade these currency pairs directly against each other. Some of the FX crosses are:
- EUR/AUD, EUR/CAD, EUR/CHF, EUR/GBP, EUR/JPY
- GBP/AUD, GBP/CAD, GBP/CHF, GBP/JPY, GBP/NZD
- AUD/CAD, AUD/CHF, AUD/JPY, AUD/NZD
- NZD/CAD, NZD/CHF, NZD/JPY, SGD/JPY
Exotic pairs – while these pairs don’t necessarily relate to exotic countries, this is how traders refer to the rest of the pairs in which at least one of the currencies is not a major. Here are some examples of exotic pairs:
- USD/SGD (Singapore Dollar)
- EUR/NOK (Norwegian Krone)
- USD/ZAR (South African Rand)
In the past, whenever traders wanted to exchange two non-US dollar currencies, they would have to exchange the first currency into US dollar and then do the second exchange from the US dollar into the desired currency.
Today, the Forex cross pairs can be traded directly using your MT4 trading platform. The Ox Securities MT4 trading platform allows you to trade the FX crosses with ease.
Trading opportunities with FX crosses
While the majority of forex trades are done with the major currencies, FX crosses offer a wide list of benefits and opportunities. Consider the following and see how you can include them in your trading strategy.
1. Volatility – one of the main features of FX crosses is higher volatility. The higher volatility attracts many traders who love to trade fast moving markets.
In particular, day traders and intra-day traders, who are more active, will find the higher volatility to their liking.
Here are some forex crosses with high volatility: EUR/JPY, GBP/JPY, CHF/JPY, AUD/JPY, GBP/CHF, EUR/CAD, CAD/JPY, NZD/JPY, AUD/CAD and EUR/AUD.
2. Independence from US dollar – since FX crosses do not involve the US dollar, you can make your trading decisions without any consideration on which way the US dollar is trading. This means you can focus more on the fundamentals or technical movements of the Forex crosses.
3. Fresh trading opportunities – with most of the FX traders focused on trading the major currencies; you can focus on some FX crosses that provide good trading opportunities outside of the majors.
4. Tool for diversification – because of the trading opportunities they offer outside of the US dollar, FX crosses can provide diversification to your FX trading strategy. Thismeans you can capture trading opportunities, for example, if you want to take advantage of the trade set-ups between the Euro and Japanese Yen (EUR/JPY).
5. Niche trading – trading forex crosses is similar to finding your niche in a crowded market. This means if you focus your time and attention to a particular FX cross pair, you can study and analyse it in more detail. And then you can identify and take advantage of the trading opportunities offered by that particular FX pair.
After reviewing the benefits of FX crosses, you should also take into account these characteristics:
- Wider spreads – FX crosses tend to have wider spreads compared to the majors.
- Less liquidity – remember the majority of FX trades are done with the major pairs, so this means only a small portion of the total global trades are transacted on FX crosses.
Popular FX crosses
If you’re ready to explore FX crosses to find new trading opportunities and to diversify your FX trading, here are some of the most popular crosses that you may want to consider:
- Yen crosses: GBP/JPY, EUR/JPY, CAD/JPY, AUD/JPY, NZD/JPY. These pairs move almost synchronously and are among the most volatile ones.
- Euro crosses: EUR/CHF, EUR/GBP, EUR/CAD, EUR/AUD, and EUR/NZD.
- Pound crosses: GBP/CHF, GBP/AUD, GBP/CAD, and GBP/NZD.
Their importance is related to the fact they involve the three most popular currencies following the US Dollar: Euro, Yen, and British Pound.
An important thing to remember when trading FX crosses is that you can use your FX trading platform – including MT4 – to set alerts, use stop losses and other risk management tools for all your trades.
The fact the global FX market is massive in terms of dollar value and transaction volume does not mean that you have to trade the same currencies everyone is trading. Finding your niche – e.g. trading forex crosses – may be a good alternative to trading the majors.