Excerpt from: Forex Training
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| February 05, 2009 | | Trading without the U.S. dollar |
When reading forex news and quotes, it is possible that you might, at some point, come across the term "crosses." This term, crosses, refers to cross currencies. Cross currencies are simply currency pairs that do not include the U.S. dollar. (Learn more about how currency pair trading works by clicking here.)
History of cross currencies
In the beginning, the foreign exchange (forex) market required that all currency trades include the U.S. dollar. If you wanted to convert sterling to yen, you first had to convert sterling to dollar, and then convert the dollar to yen. As you might imagine, this process was somewhat inefficient.
However, as currency trading became more common, and as the global economy became more...global, the forex market became more user friendly. Cross currencies were introduced. Now it is possible to directly exchange sterling for yen -- and make other direct exchanges.
This development, along with the advent of electronic trading, made the forex market more accessible to more people. Additionally, cross currencies provide a way to make money in FX trading without having to use the U.S. dollar if one doesn't want to. (Of course, the risks of forex trading also mean that it is also possible to lose money without having to use the U.S. dollar.)
It is worth noting, though, that cross currencies can still be influenced by movements in the U.S. dollar, even if cross currency pairs do not include the greenback.
| Topic Tags: cross currencies, currency pair, currency pair trading, forex, forex market, FX trading, make money forex, U.S. dollar | |
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