More than 90% of transactions in the foreign exchange market involve the US dollar. This is because the US dollar is the global reserve currency. You may ask yourself: “Why is the global reserve currency in dollars rather than pounds or euros?”
Most agricultural and industrial commodities, such as oil, are denominated in dollars. If a country needs to purchase oil or other agricultural products, it must first exchange the currency of the country into US dollars before purchasing related products. This is why most countries use the US dollar as their foreign exchange reserves. As long as they have dollars in their pockets, it will be more convenient for them to buy other goods from abroad.
Countries such as China, Japan, and Australia are major oil importers. Therefore, the central banks of these countries all have huge foreign exchange reserves in dollars. In fact, China’s current foreign exchange reserves have exceeded US$3.3 trillion.
So why should we trade cross currency pairs? Given that the US dollar dominates the global monetary system, most speculative transactions are based on this issue:
“Is the dollar stronger today or is it weaker?
This issue will directly affect most of the most liquid currency pairs.
Major currency pairs: EUR/USD, GBP/USD, USD/JPY, USD/CHF
Commodity currency pairs: AUD/USD, USD/CAD, NZD/USD
Note that all these currency pairs are linked to the US dollar. When the majority of traders’ trading decisions are based on changes in the US dollar, their trading options will be few.
You can see that when trading the seven major currency pairs, your positions are basically bullish or bearish. Speculation on a single US dollar makes the 7 major currency pairs usually rise and fall together.
In contrast to the stock market, you can see that despite the overall positive market trend, you still have many other trading opportunities. Speculation on a variety will not affect the entire stock market.
Unlike the seven major currency pairs that closely follow the trend of the US dollar, cross currency pairs provide more profit opportunities for foreign exchange traders!
By trading cross currency pairs, you will have more choices for trading, because these currency pairs are not directly related to the US dollar, so they may have different trend characteristics. Therefore, although the overall sentiment in the market is bullish or bearish on the US dollar, you can still find new trading opportunities on cross currency pairs.
For example, all dollar straights may maintain a sideways trend at some time, and at this time, the best option for traders is to wait and see to wait to capture new trading opportunities; however, if you turn your attention to cross trading , You will see numerous trading opportunities!
Most traders trade major currency pairs, and now you can join the minority camp and choose to trade cross currency pairs.