Cross currency pair
Family I · Instruments
Not to be confused with forex currency trading, major currency pairs, exotic currency pairs.
Cross currency pair is a currency pair in which neither the base nor the quote currency is the US dollar. Examples include EUR/GBP, EUR/JPY, and AUD/NZD. Crosses are typically derived from the corresponding US dollar pairs, so their quoted prices reflect the combination of two dollar-based rates.
How cross rates are formed
A cross rate is calculated from two US dollar pairs. For a cross such as EUR/GBP, the rate equals EUR/USD divided by GBP/USD. If EUR/USD is 1.1000 and GBP/USD is 1.2500, the implied EUR/GBP rate is 1.1000 / 1.2500 = 0.8800. Market makers may quote crosses directly, but the derived rate anchors the price.
Worked example
Trading characteristics
Crosses often have wider bid-ask spreads than major pairs because they are less liquid. The spread varies by broker, venue, and time of day. Liquidity is generally highest during the overlapping sessions of the currencies involved, such as the London and Tokyo sessions for EUR/JPY. Crosses can be more sensitive to regional economic data and political events than dollar pairs.
Often confused with
- forex currency trading
- Forex currency trading is the general activity of buying and selling currencies, whereas a cross currency pair is a specific instrument type that excludes the US dollar; the visible sign is whether the pair contains USD.
- major currency pairs
- Major currency pairs always include the US dollar on one side, while cross currency pairs never include it; the visible sign is the presence or absence of USD in the pair's symbol.
- exotic currency pairs
- Exotic currency pairs pair a major currency with a currency from a smaller or emerging market, while cross currency pairs can consist of any two non-USD currencies, including two majors; the visible sign is whether one leg is a thinly traded emerging-market currency.