How to trade currency crosses

Trading in the foreign exchange market is tied to the transactions with the main currency pairs, and cross-currency pairs, or currency crosses.

A small characteristic: the main pairs include the US dollar, and cross-pairs do not include dollar. Of course, the US currency is more liquid than any other, so trading in major pairs has a higher priority for any trader. However, with the right approach cross-currency trading can also be very profitable.

What is important to know when trading currency crosses

The main feature of currency cross-rates is their high volatility. Of course, it attracts many traders, because good movement dynamics of prices allows, accordingly, earn well. But remember that the medal has two sides and under certain circumstances this quality can play against you.

The highest volatility have pairs with the use of euro or Japanese yen EUR/JPY, EUR/AUD, GBP/JPY, CHF/JPY, AUD/JPY, CAD/JPY, EUR/CAD, NZD/JPY. Also, pairs which widely used by traders are AUD/CAD, GBP/CHF, AUD/NZD. In contrast to this – pairs of low volatility are EUR/CHF and EUR/GBP.

That is why when trading cross-rates with high volatility it is important to determine maximal the point of entry to the market. It is easier to achieve with trading on small 5-15 minutes time-frames.

How to trade currency crosses

Also, it should be taken into account that if the major currency pairs the movement of 30-50 points is considered a trade noise and for cross-curses these fluctuations can be 100-150 points. In other words, regardless of whether you entered the position correctly or not, short-term price fluctuations of 100-150 points can both harm you and play into the hands.

Fundamental cross-rates analysis

Particular importance when trading cross-pairs should be given to fundamental analysis. Crosses are extremely sensitive to news, any event in economical or political life of our country or its main trading partners can greatly affect the price movement of cross-pairs. That is why it is necessary for crosses traders follow the main indicators of Europe, the USA and Asia countries.

Such pairs as EUR/GBP and EUR/CHF are not recommended for use as trading tool for trader beginners as they often react on economic indicators of Great Britain, Switzerland and Eurozone as a whole in very unpredictable manner. These currency pairs are characterized by low volatility. However, despite this, it is quite difficult to make profit by trading them. On such instruments the movement can be almost absent for a long time because of what it is necessary to leave the position open, exposing it to unjustified risk.

Analyzing the movement of cross-currency pairs, it can be predicted the behavior of main currency pairs. For example, GBP/USD pair moves often after GBP/JPY cross. To understand the patterns in movement of crosses and main pairs it is needed to arrange the graphs side by side and watch them for some time or overlay the graphs on each other using indicators.

Cross-rates technical analysis

Cross-rates technical analysis particularly differs from the analysis of major currency pairs’ analysis. As already mentioned, it is better to trade cross-rates on junior time-frames. To identify points of entry into the Forex market during the trade on older time intervals it is important to pay attention on reversal models and models of trend continuation formation.

To reduce risks, stop-loss must be installed at a greater distance than when working with major currency pairs. Also, do not forget about the capital management and adhere to the rule that the risk should not exceed 2% of the trace value.

Trading currency crosses can not be called simple. But if study the peculiarities of crosses’ movement, get used to their volatility and learn how to analyze economic news correctly it is possible to earn a solid profit. Therefore, before trading cross-pairs on real account, it is better to practice on demo firstly.

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