Most people who start trading currencies begin with pairs that include the US dollar, because that is where the bulk of the volume sits. Sooner or later, though, you come across pairs such as EUR/GBP or GBP/JPY, where the dollar is nowhere to be seen. These are known as cross pairs, and they behave in ways that are worth understanding before you trade them.
Majors and crosses
In the foreign exchange market, the major pairs are those that combine the US dollar with another heavily traded currency: EUR/USD, GBP/USD, USD/JPY and a few others. The dollar is involved in the large majority of global currency transactions, which is why these pairs dominate.
A cross pair is any pair that does not include the US dollar. EUR/GBP, EUR/JPY, GBP/JPY, AUD/NZD and EUR/CHF are all common examples. Crosses involving the euro are sometimes called euro crosses, and those involving the yen are often called yen crosses.
If you need a quick refresher on how a pair is quoted, our guide on how to read a forex quote explains base and quote currencies.
How a cross is priced
Historically, if you wanted to swap pounds for yen, you would often go through the dollar first: pounds into dollars, then dollars into yen. The cross rate is effectively the result of combining two dollar pairs. GBP/JPY, for example, is closely linked to GBP/USD multiplied by USD/JPY.
Today crosses trade directly, but that relationship still matters. If you see a cross moving sharply, it can help to check which of the underlying dollar pairs is doing the work. A sharp rise in GBP/JPY, for instance, could come from pound strength, yen weakness or a bit of both, and knowing which tends to tell you more about whether the move is likely to last.
Why traders use crosses
The main attraction is that a cross lets you focus on two specific economies without the dollar’s influence getting in the way.
Take the current backdrop. The euro has slipped to a 17-month low against the dollar, with worries about French public finances weighing on it. If you trade EUR/USD, you are taking a view on the euro and the dollar together, and the dollar has its own drivers, including high US Treasury yields. If your view is really about Europe versus the UK, EUR/GBP isolates that comparison more cleanly. Our explainer on how French fiscal stress hits the euro covers that particular story.
Crosses also allow traders to express views on interest rate differences between two non-dollar economies, which is a big part of why yen crosses have been popular in carry trades.
What makes crosses different to trade
Spreads can be wider. Because crosses are generally less heavily traded than the majors, the gap between the buying and selling price is often larger. That is a cost every time you trade.
Volatility can be higher. Some crosses, particularly those involving the yen, are known for larger daily swings. GBP/JPY in particular has a reputation for moving a long way in a short time.
Liquidity varies by time of day. A cross is busiest when both of its home markets are open. EUR/GBP is liveliest during European hours, while AUD/JPY is more active during the Asian session.
Two sets of news matter. You need to keep an eye on the economic calendar for both currencies, and neither of them is the dollar, which means you may be watching less familiar data releases.
A sensible way to start
For a beginner, the majors are usually the easiest place to learn because costs tend to be lower and price behaviour is widely covered. Once you are comfortable, a cross can be a useful way to focus on a specific relationship. Start with smaller position sizes, check the typical spread and daily range before you trade, and make sure your stop-loss reflects how far the pair normally moves.
If you would like to understand how ready you are to branch out into different markets, our free trader assessment can give you a clearer view of your strengths and the gaps worth closing first.
