Cross Currency Pairs In Forex Trading

forex currency pairsWith no doubts, the main desire of all participants of Forex trading, especially the beginners, is to earn fast and a lot. Apparently after some study of the Forex materials, newbie traders begin to realize that it won’t be so easy to gain a quick profit. It will take at least a couple of years until a trader can study the trading terminal, create his own trading strategy and learn to apply it correctly. However, many traders both newbies and experienced ones seek their ways for big and quick profits in Forex market.

One of those ways is the choice of the currency pairs, which a beginner trader will trade. After making some research in Forex market a newbie trader may come to the conclusion that the base currency pairs are not so popular now-a-days. Thus he begins to explore other instruments: cross rates, exotic currencies, etc. In the end, his choice could fall on such currencies as the EUR/JPY and the GBP/JPY. Such currency pairs in a single trading day can make a change from 200 to 700 pips. That is what attracts many traders. Why to spend time on a currency pair of EUR/USD, which makes about 50-70 pips per day when the others give you an opportunity to earn 5-10 times more.

But trading such currency pairs often leads to severe losses that are much bigger than in the case, if a trade is carried on the base currency pairs. One of the main disadvantages of the cross pairs are the spreads, which are much higher than for other major pairs. High volatility of these pairs may play a cruel joke with the beginners, because if a Forex trader makes a mistake and opens a trading position in a wrong direction, the market noise, which is very significant in a cross-pairs, can result closing of a trading position at the stop-loss level.

In addition, Forex traders should take into account that the determining factor here plays one of the pairs – the JPY. The national currency of Japan may have a great impact on other cross-pairs. Due to some changes of JPY part of the currency pairs may move in one direction, but other cross-pairs may take a different direction. Therefore, every trader must be very careful when choosing a currency pair to trade. The main rule is that you should not rely on such factors as the high volatility.

A beginner trader has to trade with the basic currency pairs that include USD. It will let him bear less risk. Perhaps the potential profits will be less too, but it doesn’t matter as long as you are learning and developing your trading skills.

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  1. […] a currency pair (GBP/JPY) for the transaction. Forex currency pairs of this type are called the cross-rates. In such pairs the USD is absent. In general, any currency can be purchased for any other one. For […]

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