What a cross currency pair is
A cross currency pair (often just called a “cross”) is any forex pair that does not include the U.S. dollar. In a typical currency quote the first currency is the base and the second is the quote (or counter) currency. For a cross like EUR/GBP, the euro is the base and the pound is the quote; the price shows how many units of GBP are needed to buy one EUR. Crosses let you trade directly between two currencies without going through the dollar, so you can focus on the relationship between those two economies rather than movements in the USD.
Common crosses include pairs such as EUR/GBP, EUR/JPY, GBP/JPY, and AUD/NZD. These are distinct from the majors, which always include USD on one side (for example EUR/USD or USD/JPY), and from exotic pairs, which pair a major currency with a less-liquid emerging-market currency.
How cross rates are quoted and calculated
Cross quotes are read the same way as any currency pair: the price tells you how much of the second currency buys one unit of the first. Some brokers publish these rates directly, while others create them synthetically from USD-based pairs.
You can also derive a cross rate from two USD pairs. For example, suppose GBP/USD = 1.2500 and EUR/USD = 1.1000. To find GBP/EUR (how many euros one pound buys), divide GBP/USD by EUR/USD:
GBP/EUR = (GBP/USD) ÷ (EUR/USD) = 1.2500 ÷ 1.1000 ≈ 1.1364
That result means one British pound is worth about 1.1364 euros. The same arithmetic principle applies whenever you need a cross rate: express both currencies relative to a common third currency (often USD) and take the ratio, minding whether quotes are direct or indirect.
Why traders use cross currency pairs
Traders choose crosses for several practical reasons. Crosses let you target specific regional relationships and events without USD influence. If you want to trade the economic difference between Europe and the UK, trading EUR/GBP is cleaner than trying to combine EUR/USD and GBP/USD positions. Crosses can also provide diversification: adding non-USD pairs to a portfolio reduces concentration in dollar-driven moves.
Some strategies are naturally suited to crosses. Carry trades, for example, often use crosses that involve a high-yielding currency versus a low-yielding one; historically traders might borrow in low‑yield currencies like JPY and buy higher-yield currencies like AUD or NZD. Hedging can also be easier with a direct cross: a company with EUR revenue and GBP expenses can hedge EUR/GBP rather than running two USD pairs.
How brokers and markets handle crosses
Not all crosses are equally liquid. The most traded crosses—EUR/JPY, EUR/GBP, GBP/JPY—have good depth and relatively tight spreads because many participants trade them. Less common crosses may have wider spreads and more slippage, especially outside peak trading hours. Some brokers price crosses by combining two USD pairs (creating a synthetic cross), which can introduce slightly different spreads or execution quality compared with a native market quote.
Session overlap matters: cross liquidity often peaks when the two relevant markets are both active. For EUR/GBP or EUR/CHF, the European session tends to be busiest. For GBP/JPY or EUR/JPY, activity increases when both the European and Asian sessions overlap.
Practical trading considerations
When trading crosses you should pay attention to a few practical factors. First, liquidity and spreads determine cost: less liquid crosses cost more to trade. Second, volatility varies by pair—JPY crosses can move sharply in risk-off episodes, while EUR/GBP historically moves more slowly but responds to political and interest-rate differences between the euro area and the UK. Third, correlations matter. Many crosses move in predictable relation to majors: for example, EUR/JPY often correlates with EUR/USD and USD/JPY in opposing directions. Understanding these relationships helps avoid accidental overexposure.
Rollover (swap) rates and interest differentials are also more meaningful on some crosses, especially for carry trades. If your strategy involves holding positions overnight, the interest-rate differential between the two currencies can produce positive or negative swaps that materially affect performance over time. Finally, margin and leverage work the same way as with majors, but because cross volatility can be higher and spreads wider, position sizing and risk controls should be adjusted accordingly.
Deriving a cross rate — a step‑by‑step example
Imagine you want EUR/GBP but your broker lists only EUR/USD and GBP/USD. Follow these steps: first note the two USD quotes; next decide the direction you need (how many GBP per EUR); then divide EUR/USD by GBP/USD.
Using numbers: EUR/USD = 1.1000 and GBP/USD = 1.2500. EUR/GBP = 1.1000 ÷ 1.2500 = 0.8800. That means one euro buys 0.88 British pounds. If one of the quotes is expressed the other way (like USD/JPY instead of JPY/USD), you must invert that quote before doing the ratio. Being comfortable with inverting rates and working through the algebra quickly is a useful practical skill.
Risks and caveats
Crosses carry the same fundamental risks as any forex trade—market risk, leverage risk and the possibility of losing capital—but they also introduce some specific caveats. Liquidity can be lower outside peak sessions, which widens spreads and increases slippage. Execution on synthetically derived crosses can differ from native quotes. Crosses can display stronger reactions to local political events that don’t affect USD pairs, so news risk can be concentrated and sudden. Correlation risk is another subtle danger: positions in multiple crosses can produce unintended exposure to the same underlying economic factor. Finally, using leverage amplifies both gains and losses; always size positions so that a reasonable adverse move won’t threaten your account.
Trading carries risk and is not suitable for everyone. This article is for general education only and does not constitute personalized financial advice.
Key takeaways
- A cross currency pair is any forex pair that does not include the U.S. dollar; examples include EUR/GBP and GBP/JPY.
- Cross rates can be quoted directly or derived from USD pairs by taking the appropriate ratio; practice helps avoid inversion mistakes.
- Crosses offer ways to trade regional relationships and diversify away from USD-driven moves but may have wider spreads and variable liquidity.
- Manage position size, watch session overlaps, understand correlations, and remember that trading carries risk.
References
- https://www.babypips.com/learn/forex/buying-selling-currency-pairs
- https://www.blackwellglobal.com/the-ultimate-guide-to-trading-cross-currency-pairs/
- https://www.investopedia.com/terms/c/crosscurrency.asp
- https://groww.in/p/what-is-cross-currency
- https://traders-academy.deriv.com/trading-guides/a-guide-to-understanding-cross-currency-pairs
- https://corporatefinanceinstitute.com/resources/foreign-exchange/cross-currency-transaction/
- https://www.home.saxo/learn/ways-to-trade/forex