Understanding Cross-Currency Pairs in Forex Trading


Updated March 4, 2024.

If you're new to the world of forex trading, understanding cross-currency pairs is a must. In this article, we'll break down what they are and how they work in order to help you get started in the world of online currency trading.
So, what are cross-currency pairs, and why are they important? Simply put, a cross-currency pair consists of any two currencies traded on forex, excluding the US Dollar. For example, a EUR/GBP pair would be considered a cross-currency pair.
Namely, there are two types of cross-currency pairs known in the forex trading world: minor currency pairs and exotic currency pairs. Both of these types have different levels of risk and are traded accordingly. All noteworthy characteristics of trading both types will be explained in more detail below, and we will show you how to use them in order to potentially earn a profit.
Cross-Currency Pairs Explained
So, why are cross-currency pairs important? When you trade in the forex market, you're always trading two currencies at once. By understanding how these pairs move against each other, you'll be better equipped to make informed trading decisions and take advantage of price movements in the market. With that in mind, let's dive into more detail about how cross-currency pairs work.
Minor Currency Pairs
Minor currency pairs are the most common type of cross-currency pairs. These pairs usually include the Euro (EUR), British Pound (GBP), Japanese Yen (JPY), and Swiss Franc (CHF). These pairs are typically more liquid than exotic currency pairs, meaning there is always more than enough trading volume, ensuring that the trades are less volatile and risky. This makes them ideal for beginners who want to start small and gradually build up their positions.
Exotic Currency Pairs
On the other hand, exotic currency pairs are less common than minor currency pairs and usually involve two currencies from emerging markets. Most examples of exotic currency pairs include the Mexican Peso (MXN), the Indian Rupee (INR), and the Russian Ruble (RUB). These pairs are more volatile, so they can be riskier than minor currency pairs. However, they may offer some potential for profit.
» Learn more: Major, minor, & exotic currency pairs
Benefits of Cross-Currency Pairs
Whether you’re trading a minor or an exotic currency pair, cross-currency pairs have some advantages, including:
- Access to a wider range of markets.
- Higher potential for profit in volatile markets.
- An easier time when it comes to diversifying and hedging risk.
- Access to liquidity for seamless trading conditions.
- Potential to profit from economic factors from multiple countries simultaneously.
- Lower transaction costs due to competitive spreads.