Forex Strategy: 4 Benefits of Trading Cross Pairs - PowerPoint PPT Presentation

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Forex Strategy: 4 Benefits of Trading Cross Pairs
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Forex Strategy: 4 Benefits of Trading Cross Pairs

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  1. Forex Strategy: 4 Benefits of Trading Cross Pairs In foreign currency exchange, any pair that doesn’t include the U.S. dollar is considered a “cross pair.” These non-USD based pairs represent a grand opportunity for trading, with popular crosses like EUR/GBP, EUR/AUD and EUR/CHF having huge market liquidity. So why trade these currency cross pairs? What are the benefits? For day traders, it might make sense to develop a Forex strategy that incorporates the crosses. Here are a few reasons why: 1.Matching Strongest and Weakest Currencies Typically, it’s best to focus your strategy around a strong currency and match that with a weaker currency. So for example, if the euro was very strong and the U.S. dollar was equally strong, it might be difficult to develop a profitable strategy around the major EUR/USD pair. By trading a cross pair, though, you could pair the euro with a weaker currency. This enables you to pivot away from USD pairs. 2.Increased Market Volatility The major currency pairs like EUR/USD, USD/CHF and GBP/USD have fairly predictable market fluctuations. Although there are periods of volatility, the major pairs are relatively stable for the majority of the time. With currency cross pairs, though, the trends are more dramatic. There are greater swings and more dramatic movements. Because of this, traders have an opportunity to score bigger profits by correctly guessing market swings in the cross pairs.

  2. 3.Avoiding USD Volatility The value of the U.S. dollar can become extremely volatile around specific economic events. For example, when the U.S. Federal Reserve Bank chooses to increase interest rates, the markets have historically been very volatile. Many traders choose to speculate in currency crosses around U.S. economic events, including jobs reports, interest rate changes, and other factors, to avoid the unpredictability of the markets. 4.Expanded Trading Opportunities Finally, currency cross pairs greatly expand the trading possibilities open to you. For example, as all the majors are tied to the value of the U.S. dollar, the currency crosses move independently of USD value moves. That means even in periods of relatively stability in the major pairs, a day trader can diversify his trades to include crosses to maximize profit potential. Information Provided by Learn To Trade