Cross Rates Forex: Complete Trading Guide for Currency Pairs 2025

Introduction: Beyond the Dollar

In the big forex market, the US dollar often stands out. New traders usually learn about major pairs like EUR/USD or USD/JPY first.

What if you want to trade the Euro directly against the British Pound？ This is where cross rates come into play.

These represent an important way to engage with the global currency market that offers more options.

The Simple Answer First

A cross rate, or a cross-currency pair, is any currency pair traded in the forex market that does not include the US dollar (USD).

Major pairs like EUR/USD and GBP/USD are like the main highways of the forex world. Cross rates, such as EUR/GBP, are the direct roads connecting them.

This matters because it lets you exchange two non-USD currencies directly, without needing to convert through the US dollar first.

Why Cross Rates Exist

To understand cross rates, we need to know about the important role of the US dollar in global finance.

Its power is why we have "major" pairs and "cross" pairs.

The Dollar's Dominance

The US dollar is the world's main reserve currency, a position that became official after the Bretton Woods Agreement in 1944.

In the past, this meant most currency exchanges had to go through the USD. For example, to change British Pounds (GBP) to Japanese Yen (JPY), a bank would first sell GBP for USD, then use those dollars to buy JPY.

This tradition continues today. According to the Bank for International Settlements (BIS) Triennial Central Bank Survey, the US dollar is part of about 88% of all global forex trades.

Rise of Cross-Currency Trading

Modern electronic trading platforms have changed this process completely. They made direct exchange of non-USD pairs easy and available to all traders.

The main benefit is lower costs. By trading EUR/JPY directly, you avoid the spread and possible slippage from two separate trades (EUR/USD and USD/JPY).

How to Calculate a Cross Rate

While your broker will show you a direct quote, knowing how a cross rate is calculated gives you better insight into the market.

The price of a cross rate comes from the exchange rates of two currencies against a common third currency, almost always the US dollar.

The Fundamental Formula

There are two main ways to do this calculation, depending on how the USD appears in the major pairs.

Scenario 1: USD as Base

Let's figure out the cross rate for EUR/JPY. The common currency is USD.

First, identify the needed major pairs: EUR/USD and USD/JPY.

Next, apply the logic. To get EUR/JPY, we need to remove the USD from the two major pairs.

The calculation is: EUR/JPY = EUR/USD * USD/JPY.

For example, if EUR/USD is 1.0800 and USD/JPY is 157.00, the cross rate equals 1.0800 * 157.00 = 169.56.

Scenario 2: USD Base/Quote

Now, let's calculate EUR/GBP. This is slightly different.

First: The major pairs are EUR/USD and GBP/USD. Notice USD is in different positions.

Next: We need to divide one rate by the other to cancel out USD.

The formula is: EUR/GBP = EUR/USD / GBP/USD.

If EUR/USD is 1.0800 and GBP/USD is 1.2700, the cross rate is 1.0800 / 1.2700 = 0.8504.

A Note on Spreads

These simple calculations use one price. In real trading, every currency pair has two prices: a bid (to sell) and an ask (to buy).

Real calculations must use the right bid and ask prices from the major pairs. This makes things more complex and affects the final spread.

Common Types of Cross Rates

Cross rates come in different types. They can be grouped by the currencies involved, which affects their liquidity and trading patterns.

The Major Crosses

The most popular cross rates involve other major currencies: the Euro (EUR), Japanese Yen (JPY), and British Pound (GBP).

These pairs have high trading volumes and smaller spreads, making them good for new cross-currency traders.

Cross Pair	Nickname(s)	Driving Currencies	Key Characteristics
EUR/JPY	Euppy / Yuppy	Euro & Japanese Yen	Sensitive to global risk sentiment (risk-on/risk-off)
EUR/GBP	The Chunnel	Euro & British Pound	Reflects the economic relationship between the UK and Eurozone
GBP/JPY	Geppy / The Dragon	British Pound & Yen	Known for its high volatility and wide price swings
EUR/CHF	Euro Swissy	Euro & Swiss Franc	Often reflects stability and safe-haven flows in Europe

Minor and Exotic Crosses

Beyond major crosses, we find minor and exotic crosses.

Minor crosses involve other fairly liquid currencies like the Australian Dollar (AUD), New Zealand Dollar (NZD), and Canadian Dollar (CAD). Pairs like AUD/NZD and CAD/JPY are in this group.

Exotic crosses pair a major currency with one from a smaller economy, such as the Turkish Lira (TRY) or South African Rand (ZAR). Examples include EUR/TRY or GBP/ZAR.

Be aware that minor and especially exotic crosses usually have less liquidity and wider spreads. This increases both cost and risk.

Strategic Trading of Cross Rates

Understanding cross rates goes beyond definitions and math. Their real value is in the unique trading opportunities they offer.

Trading crosses lets you have a more precise market view, free from the strong influence of the US dollar.

Strategy 1: Isolating Strength

Cross rates let you express a specific view on two economies.

Imagine this: you think the Eurozone economy will do better than the UK's because of different monetary policies. But you're not sure about the US economy and dollar.

Trading EUR/USD or GBP/USD would add unwanted USD risk. Your trade could be right about EUR/GBP but still lose money if the dollar moves sharply.

By trading EUR/GBP directly, you focus only on these two currencies. You make a pure bet on the relationship between the Eurozone and UK, removing USD "noise."

For instance, if we were positive on Japan's economy but negative on Canada's due to falling oil prices, a direct approach works best. Instead of separate USD/JPY and USD/CAD trades, we could focus on a short position in CAD/JPY.

Strategy 2: Carry Trade

Cross rates are key to the carry trade strategy, which focuses on interest rate differences.

The idea is to buy a currency with a high interest rate while selling one with a low rate.

For example, if Australia's interest rate is much higher than Japan's, a trader might buy AUD/JPY. The goal is to earn the interest rate difference, paid daily as a "swap" fee.

This strategy has significant risks. A quick, unfavorable exchange rate move can easily wipe out interest gains.

Strategy 3: Diversifying from USD

If you only trade USD-based pairs, your entire portfolio depends on US politics and economics.

Trading cross rates helps spread your market exposure.

This can be crucial for managing risk, especially during times of high USD volatility, like around Federal Reserve meetings or major US economic reports.

A Real-World Example

Let's connect theory with practice. Calculating a cross rate with real bid and ask prices shows the true trading cost.

This walkthrough shows how spreads work and common mistakes to avoid.

The Setup: Real Bid/Ask Prices

Assume we see these live quotes:

• EUR/USD: 1.0800 / 1.0802 (Bid/Ask)
• GBP/USD: 1.2700 / 1.2702 (Bid/Ask)

We want to find the synthetic bid/ask quote for EUR/GBP.

Calculating the EUR/GBP Bid

First, we calculate the EUR/GBP bid price. This is the price for selling EUR/GBP.

To sell EUR/GBP, you sell Euros and buy Pounds.

You need to sell EUR/USD at its bid price (1.0800) and buy GBP/USD at its ask price (1.2702).

The formula is: EUR/GBP Bid = EUR/USD Bid / GBP/USD Ask.

The calculation: 1.0800 / 1.2702 = 0.8503.

Calculating the EUR/GBP Ask

Next, we calculate the EUR/GBP ask price. This is the price for buying EUR/GBP.

To buy EUR/GBP, you buy Euros and sell Pounds.

You need to buy EUR/USD at its ask price (1.0802) and sell GBP/USD at its bid price (1.2700).

The formula is: EUR/GBP Ask = EUR/USD Ask / GBP/USD Bid.

The calculation: 1.0802 / 1.2700 = 0.8506.

The resulting EUR/GBP quote is 0.8503 / 0.8506.

Common Pitfalls to Avoid

Mistake 1 is using wrong prices. Many people use only bid or only ask prices. This gives an incorrect rate and misleading spread.

Mistake 2 is forgetting spread widening. Our derived EUR/GBP quote (0.8503 to 0.8506) has a 3-pip spread. This is wider than the 2-pip spreads on the underlying pairs - a real cost of creating cross rates.

Mistake 3 is confusing synthetic and direct rates. The rate we calculated is "synthetic." Your broker's direct EUR/GBP quote might differ slightly due to their own market conditions.

Conclusion: Your Forex Toolkit

Understanding cross rates is a practical skill that improves your trading abilities.

It moves you beyond focusing only on the US dollar and opens up more market opportunities.

Key Takeaways

Here are the most important points:

• Cross rates are currency pairs that don't involve the US dollar.
• They allow direct trading between two non-USD currencies and come from major USD pairs.
• Trading cross rates offers unique advantages, like isolating economic views and spreading risk.
• Always watch for spreads and liquidity, as they're often wider and lower in cross rates.

By mastering cross rates forex trading, you gain new levels of market analysis and strategic flexibility, becoming a more versatile trader.