What is a cross rate and the most popular cross pairs on Forex
The exchange rate is the price of the monetary unit of one country expressed in the monetary units of another country.
But due to circumstances, it is not always possible to exchange between two currencies, due to the lack of direct quotes; in these cases, the cross rate is used.
A cross rate is the exchange rate of one currency against another, expressed in terms of a third currency.
For example, today it is impossible to directly exchange the Ukrainian hryvnia for the Russian ruble, but circumstances are different; in this case, the cross rate through the US dollar is used to determine the exchange rate between the two currencies.
After this, it is not difficult to calculate that 1 Ukrainian hryvnia costs 91.64 / 38.42 = 2.38 Russian rubles, for 100 hryvnia you get 238 rubles:
If you need to find out how much hryvnia is given for 1 Russian ruble, then we calculate 38.42 / 91.64 = 0.42 Ukrainian hryvnia. That is, for 100 rubles you will receive 42 hryvnia.
Cross rates allow you to trade from one currency to another without having to convert to US dollars. Which is an undeniable advantage, since if you first convert one currency into dollars at the selling price, and then buy another at the purchase price, the cost will change to your disadvantage.
The cross rate allows you to exclude from the calculations the size of the spread that intermediaries charge during exchange transactions; unfortunately, most banks make conversions when making card payments in another currency without using cross rates, so it is better to use multi-currency cards.
Cross pairs on Forex
If we talk about stock trading on Forex, then so-called cross pairs are used, currency pairs that do not include the US dollar.
Thanks to the use of cross rates, the spread for such currency pairs is practically no different from major currency pairs with the US dollar.
The most popular currency cross pairs usually include pairs that form the euro and other popular currencies: EUR/GBP, USD/CHF, AUD/JPY, EUR/JPY, GBP/JPY, NZD/USD, CAD/JPY, EUR/AUD , GBP/CHF:
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Trading cross pairs is a rather interesting trading option; it is perfect for those who trade during the European or Asian trading sessions .
Most of these assets have fairly high liquidity and have a small spread, while at the same time being quite volatile, which allows you to get a good profit.
Cross pairs are often used in the carry trade to make money on the difference in interest rates or to hedge risks.