Unlock new dimensions of forex trading: Explore the cross-trade strategy in depth

In the foreign exchange market, traders often focus on direct trading with US dollar as the core, such as Euro/USD, USD/JPY, etc. However, when the straight-trade currency pair is in a dilemma of sideways consolidation, do we have to helplessly wander off the market? The answer is obviously no. Cross-trade, a currency pair that is not directly pegged to the US dollar, is actually better to trade. Therefore, in this article, EagleTrader will share some trading strategies suitable for cross-trades, hoping to help traders find a trading method that is more suitable for them!

“Bullying the weak and fearing the strong” strategy

The key to cross-trading is the analysis of “relative strength”. Taking Australia’s strong economic data as an example, if the United States also releases strong economic data at this time, the Australian dollar/USD may be in a stalemate due to the equality between the two sides. At this point, traders can turn to looking for currencies that are weaker than the Australian dollar to trade.

Analysis through tools such as financial calendars, if Japan’s economy is found to be relatively weak, then the Australian dollar/JPY becomes a trading opportunity worth paying attention to. This strategy of “bullying the weak and afraid of the strong” is the essence of cross-trading trading.

The advantages of cross-trading in trend trading

Compared with straight currency pairs, cross-trading shows its unique advantages in trend trading. Taking the EUR/JPY and EUR/USD as an example, within the same time frame, the EUR/USD trend may experience frequent fluctuations “spikes” due to the strong influence of the US economy, making it difficult for traders to capture the real trend signal.

The euro/yen trend is relatively stable, and technical analysis can give trading signals more accurately. This stability makes crossover more attractive in trend trading.

arbitrage trading strategy

The crossover also has an unignorable function: arbitrage trading. Many cross-trade currency pairs have significant spreads, and traders can make profits from the interest rate difference and price appreciation by selling currencies with lower interest rates and buying currencies with higher interest rates.

This arbitrage trading strategy not only enriches traders’ profit channels, but also further highlights the unique value of cross-trading in the foreign exchange market.

Preparation and risk warning before trading

Of course, any transaction has risks. Before getting involved in cross-trading, traders must fully understand every point of the value of the currency pair they trade and conduct a risk analysis. Only on the basis of sufficient preparation can real opportunities be captured in cross-trade trading.

The cross-trading strategy provides forex traders with more diverse trading options and broader profit margins. When direct trading is in trouble, you might as well turn your attention to cross-trades and use the relative strength and weakness of currencies to capture trading opportunities. At the same time, traders should also pay attention to the application of technical analysis in cross-trading trading and the exploration of arbitrage trading strategies in order to make it more smooth in cross-trading trading!