Currency Cross Rates

When delving into the Forex market it can be a bit complex trying to understand currencies, currency pairs and cross-currencies (sometimes referred to as cross rates or simply crosses). Lately we have been hearing a lot about the advantages of knowing about currency cross-rate options, but first you would need to understand currency pairs in general. Once that is clear you will be able to see how being able to trade cross-rate options would have its advantages.

Using the U.S. Dollar as a ‘Baseline’
Historically, very few trades took place on the market that weren’t valued in U.S. dollars (USD). This goes for the stock market as well as the foreign currency exchange (Forex). Although there are seven major currencies that are most often paired in Forex trades, the USD is present in just about 90% of all pairs being traded. In the past, if anyone wanted to trade the Great British Pound (GBP) against the Japanese Yen (JPY) they would first need to convert currencies into USD to establish their margin (the amount left with a Forex broker). The same held true for such commodities as oil and gold that are also valued in United States dollars. However, currency cross-rate options allow for trades to take place without first being converted to the USD. In other words, a currency cross-rate can simply be defined as two foreign currencies being valued against each other without the necessity of first being converted to the USD.

Greater Trading Options with Cross-Rate Currencies
In terms of Forex, currency cross-rate options can open the door for some huge possibilities when trading on the open market. This premise is based on the fact that there are seven majors which are commonly traded against each other and that of those seven majors the USD is in almost 90% of all pairs traded. There will be times, more than most traders care to count, when the majors are moving almost sideways to each other which doesn’t leave them much room to make a profit. With the ability to jump in and trade in crosses there are almost endless possibilities because there will always be vertical movement between several of the crosses. It’s only a matter of keeping an eye on the current exchange rates and being able to jump in at the right moment to profit from trading based on cross-rates.

Where to Find Real Time Cross Rates
Forex brokers now have the ability to stream live data feeds on cross rates from most, if not all, currencies from around the globe. Once you are working with a broker you will be able to access all exchange rate feeds that are available on your broker’s site. Also, if you have a Forex robot you can program it to monitor your cross-rate currencies so that when they reach a specific spread it will automatically make the transaction for you. It has been noted that cross-rates are extremely volatile and have even hit spreads of 100 pips in a single day. Because of this you possibilities are almost endless as long as your margin is sufficient to cover the trade. If you don’t already have a broker, simply do a search online but take the time to find the right brokerage that has a user-friendly online platform that will integrate well with a Forex bot.

Bear in mind that many commodities are still measured against and valued in United States dollars. Once you have learned to trade currency cross-rate options you will have a whole new world of investment strategies opened to you. If the USD or other majors are not moving much and you are willing to take on a bit of risk, the sky is the limit. Just remember that greater risk can provide greater gains but it can also drain your entire margin set aside with your broker for that trade.

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