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Cross currency pair

Updated on July 18, 2023

A cross currency pair refers to a currency pair in which neither of the two currencies involved is the domestic currency of the country where the trader resides. In other words, it involves trading two foreign currencies without involving the trader’s local currency. If a trader is trading the EUR/JPY currency pair, it would be considered a cross currency pair since neither the Euro (EUR) nor the Japanese Yen (JPY) is the local currency (Indian Rupee) in this case.

Why are cross currency pairs important?

Cross currency pairs in the Forex market offer traders the chance to diversify their trading and profit from currency movements between two foreign currencies, independent of their local currency. These pairs provide increased liquidity, higher trading volumes, and tighter spreads, which can create potential trading opportunities due to their global popularity, liquidity, and volatility.

What are the factors that impact cross currency pairs?

Factors such as economic indicators, political events, and central bank policies in the countries whose currencies are involved can significantly impact the exchange rates of cross currency pairs. Therefore, thorough analysis and understanding of these factors is crucial to make informed trading decisions.