A cross-currency pair is a forex pairing that exchanges two major currencies without involving the US dollar. Instead of trading EUR/USD or USD/JPY, traders can directly exchange currencies like EUR/GBP, AUD/JPY, or GBP/CHF.
Cross-currency pairs let forex traders exchange two major currencies directly, bypassing the US dollar entirely in their transactions.
These pairs are calculated using the relationship between each currency's value against the USD, similar to how you might compare the heights of two people by measuring each against a common reference point. Cross-currency pairs offer traders additional opportunities beyond the major USD pairs, allowing them to capitalize on economic relationships between non-USD countries.
They typically have wider spreads and lower liquidity than major pairs but provide valuable diversification options and help traders avoid unnecessary USD exposure when their analysis focuses on the relative strength between two other economies. Cross-currency pairs are part of the broader classification of currency pairs used in the foreign exchange market. Cross-currency pairs fall into the category of minor forex pairs, which are distinguished from major pairs by the absence of the US dollar and from exotic pairs by involving only major currencies.
In short: Cross-currency pairs enable direct trading between two major currencies without using the US dollar as an intermediary.
Example in Action
If you want to trade EUR/ZAR (euro against South African rand) as a cross-currency pair, you avoid converting through the US dollar.
Instead of first exchanging euros to dollars and then dollars to rand, you trade directly: suppose the EUR/ZAR rate is 20.00, meaning 1 euro equals 20 rand.
If you believe the euro will strengthen against the rand, you buy at 20.00 and later sell at 20.50, earning 0.50 rand per euro traded.
This direct approach saves you from paying two spreads (EUR/USD and USD/ZAR) and simplifies your transaction into one trade.
The USD/ZAR forex pair represents the exchange rate between the US dollar and South African rand in foreign exchange markets, serving as one of the component rates used to calculate cross pairs like EUR/ZAR.
The EUR/ZAR pair is considered an emerging market cross because it pairs a major currency with the South African rand, which can experience higher volatility than major currency pairs.
Why It Matters
Cross-currency pairs matter in African Forex markets for reasons that go far beyond academic theory. They open diversification beyond the dollar. They hedge real risks when trading naira against rand or cedi against euro. They create arbitrage windows.
They speed up cross-border payments between African economies. They let traders exploit regional trends—economic cycles tied to commodity swings, policy shifts, or currency interventions—without routing everything through New York.
Common Questions
Which African Brokers Offer the Lowest Spreads on Cross-Currency Pairs?
Pepperstone, IC Markets, Exness, Tickmill, and FP Markets offer the lowest spreads on cross-currency pairs across Africa, with raw accounts starting from 0.0–0.1 pips, regulated locally in Kenya and South Africa, supporting African traders effectively.
Can I Trade Ghs/Kes or Other Intra-African Currency Pairs Directly?
Most African brokers do not offer direct GHS/KES or intra-African pairs for retail trading. These currencies typically require triangular conversion through USD or EUR, accessible mainly via OTC markets or institutional banking channels, not standard trading platforms.
How Do Power Outages Affect Cross-Currency Pair Trading Execution in Africa?
Power outages severely disrupt cross-currency trading across Africa by causing internet downtime, execution delays, order slippage, and compromised risk management. Traders experience reduced market access, wider spreads, and unreliable stop-loss orders, particularly affecting smaller participants without backup generators.
Are Cross-Currency Pairs More Expensive to Trade Than Majors for Nigerians?
Yes, cross-currency pairs are more expensive for Nigerian traders due to wider bid-ask spreads and lower liquidity compared to major pairs, increasing transaction costs per trade and cumulatively impacting frequent traders markedly over time.
Do Kenyan Regulators Restrict Trading Certain Cross-Currency Pairs?
Kenyan regulators restrict trading cross-currency pairs involving the Kenya shilling under Capital Markets regulations. However, major cross-pairs like EUR/GBP or AUD/JPY remain accessible. The CMA prohibits binary options trading but permits licensed brokers to offer standard forex pairs.
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