Cross-currency pairs are simply two currencies traded against each other, where neither of the currencies is the dominant one. For example, a cross between the EUR and GBP would be EUR/GBP. In most cases, the U.S. dollar is not involved in the cross.
Trading with cross currency pairs in Australia can be beneficial as it can provide opportunities to profit from the large movements that often occur. However, it is essential to be aware of the risks involved and potential losses.
Advantages of trading with cross currency pairs
Cross-currency pairs can be highly volatile
One of the main advantages of trading with cross currency pairs is that they can be highly volatile. There is the potential to make large profits from small price movements. However, it also means that there is the potential for losses.
You can trade with leverage
Another advantage of trading with cross currency pairs is trading with leverage. Leverage allows you to trade with more money than you have in your account. You can make a more significant profit from a minor price movement, boosting your success rate. However, it also means that it will magnify your losses if the market moves against you.
Cross-currency pairs often have low spreads
The third advantage of trading with cross currency pairs is that they often have low spreads. The spread is the difference between a currency pair’s bid and ask price. A low spread means you will pay less when you buy a currency pair and receive less when you sell it. It can make a significant difference to your profits or losses.
You can trade 24 hours a day
Another advantage of trading with cross currency pairs is that you can trade 24 hours a day. The foreign exchange market is open 24 hours a day, from Sunday evening to Friday night. Meaning you can trade whenever you want, regardless of where you are.
You can diversify your portfolio
Another advantage of trading with cross currency pairs is diversifying your portfolio. You can trade different currency pairs and asset classes to reduce your risk. By diversifying your portfolio, you can reduce the overall risk of your investment portfolio.
You can trade online
A final advantage of trading with cross currency pairs is that you can trade online. It means that you can do forex online trading from the comfort of your own home or from anywhere in the world. All you need is an internet connection and a computer. You can also trade using a mobile device, such as a smartphone or tablet.
What are the risks of trading with cross currency pairs in Australia?
Volatility
As mentioned above, one of the main risks of trading with cross currency pairs is volatility. Prices can move very quickly, and it can be challenging to predict which way they will move. It can lead to losses, especially if you are not prepared for the market to move against you.
Leverage
Another risk of trading with cross currency pairs is leverage. Leverage allows you to trade with more money than you have in your account. It will magnify your losses if the market moves against you.
The U.S. dollar
Another risk to consider when trading with cross currency pairs is the U.S. dollar. The U.S. dollar is the world’s reserve currency and is often used as a reference point for other currencies. TIf the U.S. dollar strengthens or weakens, it can impact the value of cross-currency pairs.
Economic and political events
Another risk to consider when trading with cross currency pairs is economical and political events. These events can significantly impact the value of currencies and can cause prices to move very quickly. It is essential to be aware of these risks before you trade.
Counterparty risk
Finally, counterparty risk is another risk to consider when trading with cross currency pairs. It is the risk that the other party to trade will not fulfil their obligations. It can lead to losses, so it is essential to be aware of this risk before trading.
