In the previous lessons, you looked at the opportunities and advantages of trading and monitoring cross-currencies. However, we only look at the main currency crosses, such as the EUR/GBP, GBP/JPY, EUR/CHF, and EUR/JPY.
This time, you'll look closely at the uncommon (or "Obscure") cross-currency pair and their performance in the forex market. Will you be profitable trading these? Let's see.
The cross-currency pairs are forex trading pairs that do not include the USD. In other words, it's the pairing of major currencies, excluding the USD.
But why exclude the USD when this currency belongs to the world's most stable and strongest economy? Well, let's look at history first.
It's true that the USD has become the global currency. If you teleport back from decades ago, you'll see yourself having to convert your money (Say, in JPY) to USD before you can convert it to your desired currency (GBP).
All cross-currency transactions must always go through a USD calculation for it to even start. But with the emergence of the forex market, cross-currency transactions without concerning USD have become common.
Cross-currency (or "non-USD pair") trading has become popular in forex trading. Crosses like EUR/GBP, GBP/JYP, and EUR/CHF are among the most heavily traded forex pairs.
Even better, trading crosses opens up possibilities because these pairs move differently than the majors. So, you can assume that the opportunities differ.
How do you know if the pair is a cross-currency? Simply look at the list of major currencies without the USD and pair them with one another. Here's the list for your reference:
However, only a few crosses are primarily used in the forex market. That's because not all cross-currencies are deemed profitable by the forex traders.
The rest?
They're considered obscure crosses.
The golden rule in forex trading is to know that not all currency pairs are created equal. That rule is more true in the case of cross-currency pairs.
These uncommon or obscure crosses are the ones that are not popular in the market. Only a few traders use these crosses.
With that little-to-no trading volume, these currency pairs often experience low liquidity. With an illiquid market, a sudden change in market supply and demand may cause a nasty spike, stopping your trade and wasting or even damaging your capital.
So, the volatility in this market is a fun one to ride in.
So, what are these uncommon, unpopular, obscure crosses? These are the weird combinations like;
Also, since these markets are illiquid, you can expect high transaction fees when you use these crosses. Would you want to have massive spreads while playing with wild price swings?
We don't know, but that's way too risky and non-profitable. You do you, but always be cautious and strategize your trade before you dive into the market.
For the next module, you're up to learning the most effective practice when analyzing the market, which is by looking at multiple timeframes when trading forex.