Currency cross rates are exchange rates in currencies that we notice between 2 currencies, none being an official currency of the location where exchange rates are stated. In most cases currency pairs will show comparisons between current exchange rates between home currency and currencies of different nations.
In this video below we can see cross rates overview:
See calculation example:
A forex trader can trade at currency cross rate in the event that home currency shows high volatility or there are good opportunities noticed with the other currencies. By comparing foreign currency current value with the value we see in another currency we can basically gain access to an indicator that shows us whether to sell or buy a currency.
Financial analysts will use cross rates in order to track an event’s impact on the currency values. They will use the data that they gain in order to predict forex market currency performance. In most situations we see a real time calculation of cross rates although you can take out historical data in order to compare it with the movements that are currently noticed with the analyzed currencies. If you use this method you gain extra information that can turn out to be useful when you are making decisions about currency cross rate trading.
Forex Cross Rate Currency Trading Advantages
The most important advantage that can be mentioned is the fact that there is no need to worry about any home currency fluctuation. This happens as it is not involved directly in trading in currency cross rates. For instance, let us say that your currency is EUR. In this case pairs like GBP/USD or USD/CHF will be cross currency rates. Pairs like EUR/USD will depend on Euro exchange rates. You will only be able to record profits with these pairs if EUR weakens. When using cross currency rates this does not apply.
Whenever you trade in cross currency rates you can gain access to new avenues. An innovative trader will make more profit when doing so. Such trading is only suitable for a trader that does understand currency markets from around the world in an advanced manner.
Currency Cross Rates – Influencing Factors
There are different factors that will influence cross currency trading rates but most are linked with the 2 nations’ inflation rates, economic strength and various interest rates. What is really important is to understand that cross currency trading is in no way affected by home currency. Whenever trading locally you need to be bearish or bullish in your approach but in cross rate currency trading your focus has to be on respective economies. Through cross currency trading you get a great opportunity in staying away from home currency trades when they present high risk.