The crosses referred to in this tip refer to transactions between two non-US currencies, such as the euro against the pound (EURGBP), the Australian dollar against the yen (AUDJPY), the British pound against the New Zealand dollar (GBPNZD), etc., that is, called the crosses. The name of straight and cross is a customary name in the foreign exchange market, not an official name.
There are several risks that investors need to pay extra attention to when trading crosses:
The crossover disk has no apparent regularity
Even if you use sophisticated technical analysis to analyze the crosses trend, the accuracy is not high, so to determine the crosses trend is more need to rely on the two currencies against the U.S. dollar.
Risks are higher compared to straight
As mentioned above, crosses are usually more volatile than straight trades, for example, when the U.S. dollar fluctuates significantly, crosses can be very risky.
Spreads are more likely to widen to extreme levels
Since the currencies involved in crosses are generally smaller economies, if they happen to coincide with a local holiday, or a change in liquidity during the opening and closing periods, the spreads can change extremely dramatically, resulting in clients blowing out their positions due to insufficient equity even when they are in a locked position.
Other characteristics of cross order trading:
Crosses are more volatile than straights
For example, in 2013, the euro rose by more than 3,000 points against the Australian dollar, but the euro rose by more than 800 points against the US dollar during the same period, and the payout of the euro against the Australian dollar was four times higher than that of the straight order, so investors can also consider the potential of crosses when trading.
Cross trading is a frequently used method of unwinding in the forex market
For example, if the investor is not willing to make a stop loss in the case of a straight trade, then he can choose to do a cross trade in the opposite direction, and there is a chance that he can be unlocked.