How to trade cross currency | 90% success cross currency trading
Do you know that opportunities to earn money are not limited by trading your favorite EUR/USD, GBP/USD and USD/JPY? Furthermore, a currency pair may be formed without the US dollar? In this article, we are going to introduce you to the so-called “currency cross pair”. You will find out the special features of these pairs and learn how to trade them and to avoid mistakes.
What is a currency cross pair?
After World War II ended and the gold standard crashed, most currencies were quoted against the US dollar, which was fixed to gold. When a person wanted to exchange a sum of money into a different currency, he needed to convert that money to the USD and then convert it into the desired currency. Luckily, the currency cross pairs were invented. They allow to bypass the process of converting currency into the US dollars instead you convert it to the desired currency straight away.
Generally speaking, a currency cross pair (cross currency, cross) is a pair of currencies in the Forex market, which does not include the USD.
With FBS, you can trade AUD/CAD, EUR/GBP, CHF/JPY, EUR/NZD, and even more cross pairs!
How currency cross rates are calculated?
It’s important to understand how these types of pair are created.
Let’s consider the EUR/GBP pair. We need to look at the bid/ask price for GBP/USD and EUR/USD to calculate the bid price for EUR/GBP.
Why do we choose these pairs? That is because they have the USD as the quote currency in them.
GBP/USD: 1.2887 (bid) / 1.2889 (ask)
EUR/USD: 1.1286 (bid) / 1.1287 (ask)
To calculate the bid rate for EUR/GBP we need to divide the base currency bid by the quote currency ask:
EUR/GBP (bid) = 1.1286/1.2889 = 0.8756
For the ask rate, we need to divide the base currency ask by the quote currency bid.
EUR/GBP (ask) = 1.1287/1.2887= 0.8758
Seems tough? Most brokers, including FBS, calculate the cross rates and the size of the spread for you automatically. Thus, you don’t need to learn the formula above. Yay!
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