What you'll learn
- Define a cross and a minor pair
- Understand how crosses are priced
- Know when a cross is the better trade
What a cross is
Historically, exchanging pounds for yen meant selling pounds for dollars and then buying yen with the dollars, so the GBP/JPY rate was a cross of two dollar rates. Today crosses are quoted directly, but the arithmetic still holds: GBP/JPY is GBP/USD multiplied by USD/JPY. When one of those two moves, the cross moves with it.
The common crosses
- Euro crosses: EUR/GBP, EUR/JPY, EUR/CHF, EUR/AUD, EUR/CAD.
- Yen crosses: GBP/JPY, AUD/JPY, CAD/JPY, NZD/JPY. These move a lot, because the yen's safe-haven behaviour amplifies swings in the other currency.
- Pound crosses: GBP/JPY, GBP/CHF, GBP/AUD.
- Commodity crosses: AUD/NZD, AUD/CAD.
Why trade a cross
Suppose you expect the pound to strengthen but have no view on the dollar. In GBP/USD, a strong dollar could cancel out a strong pound and leave you flat. In EUR/GBP your trade is purely pound against euro. Crosses isolate a view. They also carry different overnight swaps, and a cross between a high-rate and a low-rate currency can earn or cost a noticeable amount each night.
The costs
Spreads on crosses are wider than on majors, sometimes two or three times as wide, and they widen further outside the relevant sessions. Pip values also need working out, because the quote currency is not the dollar. The pip value calculator does that in one step.
Key takeaways
- A cross is any pair without the US dollar; minors are the crosses between major currencies.
- A cross is priced as the product or quotient of two dollar pairs.
- Crosses isolate a view on two currencies but cost more to trade.
Knowledge check
Trading forex, CFDs and other leveraged products carries a high risk of losing money. This lesson is general education, not advice. Risk disclosure.