Forex cross-currency pairs provide an ideal alternative for Forex traders who have been involved with the market for a substantial amount of time. Trading in the Forex market can be relatively easy, especially for those who have experience with calculating market trends and determining their preferred currency of interest. Typically, Forex traders are deal in Forex currency pairs which feature base currencies such as the US Dollar (USD) or the Euro. For those traders seeking to lean away from the major currencies, then Forex cross-currency pairs is the best option.
What kind of currencies do Forex Cross-Currency Pair include?
A Forex cross-currency pair usually does not include the US Dollar (USD). Similarly, currency trading which involves the Euro are sometimes referred to as Euro crosses. Forex cross-currency pairs do not include the US dollar, and traders who prefer this alternative tend to rely on other widely traded currencies. For instance, a popular Forex cross-currency pair includes the British Pound Sterling (GBP) and the Japanese Yen (JPY). Also, many Forex cross-currency pairs include the use of the Euro as another major currency, but still not the US Dollar. Otherwise, there are even more obscure Forex cross-currency pairs including the Canadian Dollar (CAD) or the Australian Dollar (AUD).
It is important to remember that trading in the more obscure Forex cross-currency pairs exposes the trader to many more risks. The risks are heightened in this situation because there is a lower trading volume, thus liquidity is not as guaranteed as with the major currencies. Major currencies never run into a problem regarding liquidity because there is such a high trade volume for those currencies, unless the broker provides you with certain protections.
Advantages of the Forex cross-currency pairs
There are some significant advantages related to trading in Forex cross-currency pairs. Particularly, the fact that if a trader suspects one of the major currencies compared to another major currency, US Dollar against the Euro, then they can use market trends with an obscure pair to measure the relative strength of the major currency. This approach towards the use of Forex cross-currency pairs requires a certain expertise in Forex in order to measure relative values of currencies, and avoiding major losses in the market.
Disadvantages of the Forex cross-currency pairs
While there are advantages in trading with Forex cross-currency pairs, there are also significant disadvantages. A major disadvantage is the higher cost of trade, lower liquidity of these markets, and higher risks may result. As the trader, you must determine whether or not to pursue the market in the path of Forex cross-currency pairs.