In the world of forex trading, the focus is often on major currency pairs such as EUR/USD, USD/JPY, and GBP/USD. However, larger opportunities and profit potential can be found in currency cross pairs, provided you can analyze them carefully. While news reports and technical analyses often prioritize movements in major currency pairs, broadening your view to include cross pairs can unlock wider and more lucrative trading opportunities.
Major Currency Pairs vs. Currency Cross Pairs
Data from DailyFX reveals that most traders tend to concentrate on major currency pairs, like EUR/USD and GBP/USD, which comprise about 30% and 10% of total trading activity, respectively. However, currency cross pairs involving currencies other than the USD make up less than 5% of traders' choices. This imbalance may stem from a tendency to follow the majority, yet there is indeed significant potential in trading currency cross pairs.
Profit Potential in Currency Cross Pairs
By examining the currency strength index at a given time, you can identify attractive trading opportunities. By choosing to trade currency pairs that exhibit significant differences in strength, you can maximize your profit potential. For example, when the JPY strengthens and the USD weakens, pairs like EUR/JPY or GBP/JPY may be appealing choices due to the involvement of a strong currency against a weak one.
Factors Influencing Movement in Currency Cross Pairs
The dynamics of movement in currency cross pairs are influenced by various factors, including monetary policies, interest rates, and fundamental factors of the countries of origin of the currencies. For instance, the AUD/CAD pair may receive less attention from some traders, but fundamental and technical analyses can reveal intriguing trading opportunities. With positive Australian labor data and disappointing Canadian indicators, coupled with technical movements indicating potential breakthroughs of resistance levels, this currency pair could be an attractive option for trading.
Trading currency cross pairs offers greater opportunities and profit potential, especially if you can identify the potential of each pair through fundamental and technical analyses. While spreads on currency cross pairs tend to be larger than those on major pairs, the profit potential can be significantly higher. With a variety of currency cross pair options like EUR/GBP, AUD/CAD, AUD/JPY, and GBP/JPY, you have numerous opportunities to maximize your trading results in this dynamic forex market.
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