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Chapter 22, Part I. Cross Pair – What the Beast is That? Page 4

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 22, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Pipruit: All right, but I still do not understand why crosses have any advantages over major pairs…​


    Commander in Pips: Now we pass to resolving this question. Since Globe economy on 70% (or even greater) is linked to US Dollar, then most part of transactions with major pairs are based on question “How does the US Dollar feel today? If it healthy, wealthy and strong – every major pair will be driven by USD strength, if it weak – then against USD. In other words, using any major pair you trade for USD or against it. That’s simple. The following picture confirms that. See, during 2010 most major pairs moved in the same direction:

    [​IMG]

    All of them are linked to USD and trading them you get excellent liquidity, tight spreads etc, but do not have a lot of options and variety in decision making - mostly only to Buy USD or not. Particularly this question is driving all that pairs.



    And now take a look at Dow Jones IA index. See here are 30 stocks. A trader has a lot of different approaches here – he/she may choose stocks with high/low dividend yield, some specific industry etc. Shares give more opportunities, since they are not link just with some single way of determining value.

    [​IMG]

    Although we can easily estimate that DJIA has risen during 2010, still, some shares have shown negative dynamic. The major thought here is they give more possibilities and variants to trade and investment decision making.

    So, as the crosses… Let’s assume that I don’t care about USD, why I should link to it? I’m interested in relative comparison of commodity currencies, say, AUD, CAD and NZD, or intra-Europe currencies – EUR, GPB, CHF and their relative valuation. Applying crosses gives you the possibility to take a look at Forex from a different angle. AUD/CHF, AUD/CAD or NZD/GBP do not link with USD and have absolutely different price behavior. While most of the market makes guesses about USD, you may focus on quite different questions and find more attractive possibilities to trade.

    Beyond that many crosses give excellent opportunities based on rate differential, aka carry trade – for instance such pairs as AUD/CHF or AUD/JPY, but we will speak about it a bit later.



    Pipruit: That’s great, Sir, I’ve got the core! What other attractive points exist in crosses?​
     
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