Cross-currency pairs, or crosses, are currency pairs that exclude the US dollar (USD) from both sides of the trade. Instead of trading one currency against the dollar, crosses pit two non-USD currencies directly against each other—for example, EUR/JPY (euro against Japanese yen) or GBP/AUD (British pound against Australian dollar).
Cross-currency pair basics
All cross-currency pairs consist of two non-USD currencies. Common examples include EUR/JPY, GBP/AUD, NZD/JPY, and EUR/GBP. Because these pairs trade outside the major-pair framework, they allow you to take positions on currency movements independent of the US dollar's influence. This is useful when your trading thesis focuses on the relative strength of two specific currencies rather than their relationship to the dollar.
Liquidity and spreads
Crosses generally have lower trading volumes than major pairs like EUR/USD. This lower liquidity translates to wider bid-ask spreads—the cost you pay when entering or exiting a trade. Higher volatility is also common in crosses, as price movement is driven by only the two currencies involved rather than benefiting from the deep liquidity pools of major pairs. Traders must account for these higher transaction costs and wider price swings when trading crosses.
Portfolio diversification
The main advantage of trading crosses is diversification. By trading currencies that exclude the US dollar, you reduce exposure to dollar-specific risks and can build a more balanced multi-currency portfolio. This is particularly useful when your trading analysis suggests strength or weakness in specific currency zones—for instance, trading EUR/JPY if you expect the euro to outperform the yen, without taking a stance on either currency versus the dollar.
