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Here's Why You Should Trade Cross-Currencies in 2023

2:54 PM Jul 9, 2020
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Forex trading

Forex allows you to trade during the working week with people from all the countries in the world. Usually, traders use currency pairs of two different countries, but what is the best currency pair to trade? In this article, we are going to clarify it.

For many reasons, traders prefer to trade on major currency pairs. One of the main ones is moderate volatility on these instruments. Risk control turns out to be a more important factor for most traders whose goal is to gain consistent profits on Forex. Many experts advise taking the first steps in trading precisely in majors as these currency pairs are considered the most stable and suitable for beginners.

However, by 2020, the market situation has changed a lot. Economic instability has led to a sharp jump in volatility everywhere. Trading in any market has become even more profitable and risky at the same time. Majors cease to occupy a leading place among the best trading instruments, giving way to cross-currency. Namely, EURGBP. Let's find out why.

The Main Dangers of US Dollar Pairs

Almost all experienced traders advise turning to the classics and trade precisely in majors. However, in today’s realities, the safest currency pairs turn into the most unpredictable. And here’s why:

  1. Donald Trump's Twitter. The glory of the daring and slightly reckless public statements of the US president has already thundered around the world. Some enthusiasts have already created special applications that help keep track of his latest tweets. And all because every Trump’s statement can cause a sharp jump in the market by dozens of pips and even reverse the trend. As long as the US president continues to pursue such a policy, trading in majors will be risky.
  2. Stop Loss hunters. The incredible popularity of US dollar pairs doesn’t elude market makers. Large banks that provide the high liquidity in majors come to the market to hunt for Stops of retail traders and to manipulate the exchange rates. And they easily succeed, since most traders act fairly predictably and set exit points near important price levels. Knowing this, the market makers invest lots of money to reverse the market and knock out a huge number of Stop Loss transactions, thereby receiving a significant positive outcome.

Unfortunately, there is no way you can predict such events. Donald Trump's tweets are completely spontaneous while Stop hunters are not amenable to technical analysis. Of course, you can slightly change the position of your Stop Loss level but most likely it will save you a few pips at most. The best solution in this situation is to switch to cross-currency trading.

The Advantages of Minors

These trading instruments include currencies from the most developed and economically stable countries in the world, except the United States. What makes them so attractive:

  • Resistance to external economic factors. Even Donald Trump’s statements are not reflected in their rates.
  • A weak reaction to events in the US allows you to leave open positions on minors even at night.
  • A more predictable response to domestic economic indicators simplifies fundamental analysis.
  • Strong volatility is limited to half a day which allows better risk control.

Why EURGBP Is Better Than Other Pairs

The article began with the fact that it becomes dangerous to trade in majors due to growing volatility. However, most traders know that fluctuations in cross-currencies can be even higher. The exception is the two pairs - EURGBP and EURCHF. This is due to the fact that both currencies in these instruments are correlated. That is why during times of economic instability these two pairs acquire the most convenient volatility level.

At the same time, EURGBP has the highest trading volume among all cross-currencies, which provides fairly high liquidity in the market. In addition, since the United Kingdom left the European Union, the currency pair began to grow steadily, which simplifies forecasting for low-frequency traders.

What to Pay Attention to When Trading Minors

The main difference between cross-currencies and majors is the difference in approaches. US Dollar pairs are most often subjected to technical analysis. Trading is performed mainly on price action. Cross-currencies are much more subject to economic indicators, therefore fundamental analysis plays a huge role for them. Pay attention to the following:

  • Economic and political news releases
  • Key fundamental indicators such as GDP, import and export, etc.
  • Interest rates (except for EURGBP and EURCHF, as these indicators have almost no effect on them)
  • Stock indices etc.

If you decide to try yourself in cross-currency trading, you won’t be able to brush aside fundamental analysis and daily monitoring of the economic calendar and other important news. However, these trading instruments will give you a number of advantages over majors. The main one will be the lack of activity of market makers seeking to knock out your Stop Loss positions.

Particular attention should be paid to the EURGBP pair that now shows stable growth without strong fluctuations. This will allow you to trade the British pound even at higher timeframes, including daily charts.

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losing streak perfectionism consistent profits starting capital initial investment market psychology japanese candlesticks PAMM trust management money manager holidays market sentiment CHF CAD Great Britain pound Swiss Frank reserve currency averaging morning routine initial capital potential profit reverse pattern rounded bottom rounded top saucer inverse saucer IB Program IB Commission Sharing reversal patterns deposits payment methods payment systems local transactions trader’s block market balance