In the previous lesson, we discussed the most traded Forex pairs. These are also called major Forex Pairs, the most popular majors are: GBP/USD, EUR/USD, USD/CHF, USD/JPY. If you pay attention to these Forex pairs, you can see that they all have one thing in common, namely that they are traded against the US Dollar. So when the U.S. dollar is not included in a currency quote as one of its components, then it is called a cross currency.

Why Do Cross Currencies Exist?

Over 80% of the transactions in the Forex market involve the U.S. dollar. This is because the USD is the reserve currency in the world. Most of the agricultural and other commodities such as oil are priced in USD. If a country needs to purchase any commodity, it would first have to change its currency into USD before being able to buy the goods. That’s the reason many countries keep a reserve of USD on hand.
This issue was not only for purchasing commodities, but also when a country wanted to buy a foreign currency. The country was required first to convert their currencies into U.S. dollars, and only then could they convert their dollars into the currency of their choice. For instance, if a person wanted to change their British pounds into Japanese yen, they would first have to convert their pounds into U.S. dollars, and then convert these dollars into yen.
With the invention of currency crosses, England, Japan, Australia and other countries are able to bypass the process of converting their currencies into US dollars, but simply convert it directly into the desired currency. The most popular cross currencies among traders are the EUR/GBP, GBP/JPY, EUR/CHF and EUR/JPY. There are of course more cross currencies, below you can find a list of such cross currencies:

Euro cross currency pairs

  • EUR/JPY

  • EUR/GBP

  • EUR/AUD

  • EUR/CAD

  • EUR/NZD

  • EUR/CHF

Yen cross currency pairs

  • EUR/JPY

  • GBP/JPY

  • AUD/JPY

  • CAD/JPY

  • NZD/JPY

  • CHF/JPY

Pound cross currency pairs

  • EUR/GBP

  • GBP/JPY

  • GBP/AUD

  • GBP/CAD

  • GBP/NZD

  • GBP/CHF

Australian dollar cross currency pairs

  • EUR/AUD

  • AUD/JPY

  • GBP/AUD

  • AUD/CAD

  • AUD/NZD

  • AUD/CHF

Canadian dollar cross currency pairs

  • EUR/CAD

  • CAD/JPY

  • GBP/CAD

  • AUD/CAD

  • NZD/CAD

  • CAD/CHF

New Zealand dollar cross currency pairs

  • EUR/NZD

  • NZD/JPY

  • GBP/NZD

  • AUD/NZD

  • NZD/CAD

  • NZD/CHF

Swiss franc cross currency pairs

  • EUR/CHF

  • CHF/JPY

  • GBP/CHF

  • AUD/CHF

  • CAD/CHF

  • NZD/CHF

Why Trade Currency Crosses?

Instead of trading the Forex major pairs, all dollar-based pairs, traders can choose to diversify and trade currency crosses. The selection of currency crosses is larger than Forex major pairs. Hence, providing more opportunities for traders to find profitable trades.
Also, by trading currency crosses, you will notice different price movement behaviors in comparison with USD-based Forex pairs. This means that the prices of these currency crosses are not affected by the USD market sentiment. In simple terms, the market sentiment is the outlook of a currency’s price direction, either rise or decline, from of all the investors in the market.

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