Cross Currency Pair
A cross currency pair, also known as a cross rate, is a currency pair in which neither of the two currencies being traded is the U.S. dollar (USD). In other words, a cross currency pair is a currency pair that does not involve the U.S. dollar. Instead, it consists of two major currencies traded against each other.
Example of a Cross Currency Pair
For example, if a trader wanted to trade the Euro (EUR) against the Japanese Yen (JPY), that would be considered a cross currency pair. In this case, neither the Euro nor the Yen involves the U.S. dollar in the currency pair. Similarly, trading the British pound (GBP) against the Australian dollar (AUD) would also be considered a cross currency pair because neither currency involves the U.S. dollar.
Trading Cross Currency Pairs
Trading cross currency pairs can be advantageous for traders looking to diversify their portfolios or seeking exposure to currencies other than the U.S. dollar. While cross currency pairs may not be as widely traded or have as tight spreads as major currency pairs involving the U.S. dollar, they can provide opportunities for profit if the trader successfully predicts the direction in which the exchange rate between the two currencies will move.
