Lesson 2: Forex Hack: Trade Majors Using Currency Crosses

Trading and profiting from the forex market is never limited to using majors, the USD-based pairs. In fact, trading currency crosses will bring as many opportunities as majors offer.  

But if you’re really fixated on trading majors, then you do you. But did you know you can use currency crosses to trade major pairs effectively? By looking at these crosses, you have a reference in predicting the potential major market movement.

Lesson Highlights

• Major currencies, such as EUR, GBP, JPY, AUD, NZD, CAD, and CHF, are paired in currency crosses.
• Monitoring the movement of the cross markets gives sound data on the potential major pair market movement. It allows traders to see whether the non-USD currency in a pair will depreciate or appreciate.

The Majors and Currency Crosses 

As you know, cross currencies pair major currencies aside from the USD. Here, you pair up major currencies against one another, giving forex traders more opportunities to speculate on other major economies.

Remember, the US economy and USD are not the only ones that make the market crazy. The major economic markets are also known for being intense market movers.  

So, from which countries do these major economies come from? Here is the list of non-US countries with strong, healthy, and stable economies: 

1. European Union (EUR) 
2. United Kingdom (GBP) 
3. Japan (JPY) 
4. Australia (AUD) 
5. Canada (CAD) 
6. Switzerland (CHF) 
7. New Zealand (NZD) 

So, cross-currency pairs? How do you form them? Well, you simply pair the currencies of these major countries. 

Yes, it’ll be EUR/GBP, GBP/JPY, EUR/JPY, GBP/CHF, and so on! 

Looking At Currency Crosses When Trading Majors 

Before diving into this section, let’s first review the concept of major and cross-currency pairs. 

1. The major pairs include a pairing of USD and other currencies of major economies.  
2. The cross-currency pairs are a grouping of two major currencies, excluding USD.   

Understood? Now, what do these definitions tell you? Have you noticed their relative relationship? 

A solid and significant relationship exists between the cross-currency pairs and the majors.  

Why? The currencies involved in one pair category are included in the other category. Let’s say you’re considering trading EUR/USD and GBP/USD. In those pairs, the two non-USD currencies have a specific cross-currency pairing: EUR/GBP.  

To paint a better picture, here’s how Anne monitors EUR/GBP pair when deciding the better trade between EUR/USD and GBP/USD 

Sample Scenario: Anne Decides Which Is the Better Trade 

Anne has been trading for almost five years now. She’s familiar with how the market works and can derive strategies based on different markets.  

One day, she desires to open a long position for a major pair, but she’s hesitant about a better trade between EUR/USD and GBP/USD. To help her decide, she monitored the EUR/GBP to see which currency was strengthening.  

Upon monitoring the market, she found that the EUR/GBP is currently on its downtrend, meaning the GBP is stronger relative to the EUR. With this finding, she concluded that opening a long GBP/USD is safer and would get her more pips.   

There’s the logic! Since you’re trading both EUR/USD and GBP/USD, you get to see its potential movement by simply monitoring the trend of the EUR/GBP. If it’s on an uptrend, you open a major with EUR as the base currency. If it’s on a downtrend, you open a major with GBP as the base.  

Note: Monitoring currency crosses is effective when looking for the relative strength of major pairs. 

Choosing Currency Crosses for Trading Majors 

Now, you know how to use currency crosses to position your major pair effectively. How about knowing which cross-currency to look at?  

For this, you simply look at the major pairs you want to trade, look for the non-USD currencies, and figure out their cross-currency pairing.  

If you’re bullish on the USD, you can look at;   

• EUR/GBP to decide whether to go short on EUR/USD or GBP/USD 
• CHF/JPY to decide whether to go long on USD/CHF or USD/JPY 
• GBP/JPY to decide whether to go short on GBP/USD or long on USD/JPY 
• EUR/JPY to decide whether to go short on EUR/USD or long on USD/JPY 

For the next lessons, we’ll look at uncommon or obscure currency crosses and why you must be cautious when trading these.