What is a 'Cross Rate'

A cross rate is the currency exchange rate between two currencies when neither are the official currencies of the country in which the exchange rate quote is given. Foreign exchange traders use the term to refer to currency quotes that do not involve the U.S. dollar, regardless of what country the quote is provided in.

BREAKING DOWN 'Cross Rate'

An exchange rate between the euro and the Japanese yen is considered to be a cross rate in the market sense because it does not include the U.S. dollar. In the pure sense of the definition, it is considered a cross rate if it is referenced by a speaker or writer who is not in Japan or one of the countries that uses the euro. While the pure definition of a cross rate requires it be referenced in a place where neither currency is used, the term is primarily used to reference a trade or quote that does not include the U.S. dollar.

Major Cross Rates

Any two currencies can be quoted against each other, but the most actively traded pairs are EURCHF, which is the euro versus the Swiss franc; EURGBP, the euro versus the British pound; EURJPY, the euro versus the Japanese yen; and GBPJPY, the British pound versus the Japanese yen. The euro is the base currency for the quote if it is included in the pair. If the British pound is included but the euro is not, the pound is the base. These currencies are actively traded in the interbank spot foreign exchange market, and to some extent in the forward and options markets.

Minor Cross Rates

Crosses traded in the interbank market but are far less active include CHFJPY, the Swiss franc versus the Japanese yen; and GBPCHF, the British pound versus the Swiss franc. Crosses involving the Japanese yen are usually quoted as the number of yen versus the other currency, regardless of the other currency.

Any two currencies can be quoted against each other, regardless of whether the pair is traded. Cross quotes in currencies that are similar in value and quoting convention must be defined carefully to prevent mistakes. For example, the New Zealand dollar was quoted at 1.0500 per Australian dollar in late June 2016. Both are quoted against the U.S. dollar as the number of U.S. dollars to buy the foreign currency, which provides no guidance as to which is the base currency. It is market convention that uses the stronger AUD, which is also the larger economy, as the base. The two currencies trade near parity to each other, creating the potential for a misquote.

Bid-Offer Spread

The major crosses have bid-offer spreads slightly wider than the major dollar-based pairs, but they are quoted actively in the interbank market. Spreads in the minor crosses are generally much wider; some are not quoted directly at all, so a quote must be constructed from the bids and offers in the component currencies versus the U.S. dollar.

RELATED TERMS
  1. Base Currency

    The first currency quoted in a currency pair on forex. It is ...
  2. Exchange Rate

    An exchange rate is the price of a nation’s currency in terms ...
  3. GBP/USD (British Pound/U.S. Dollar) ...

    The abbreviation for the British pound and U.S. dollar (GBP/USD) ...
  4. Currency Pair: EUR/USD (Euro/U.S. ...

    The Currency Pair EUR/USD is the abbreviation for the euro and ...
  5. Death Cross

    A death cross pattern occurs when a security's short-term moving ...
  6. National Currency

    A national currency is a legal tender issued by a central bank ...
Related Articles
  1. Trading

    A Primer On Cross Currency Triangulation

    This method to transact business in euros while making profits at home is essential. Find out how it's done.
  2. Trading

    Understanding the spread in retail currency exchange rates

    Understanding how exchange rates are calculated and shopping around for the best rates may mitigate the effect of wide spreads in the retail forex market.
  3. Trading

    Top 5 Hardest-Hit Currencies

    The value of a country's currency is dependent on many factors that will cause it to fluctuate, relative to other world currencies.
  4. Trading

    These Are The Best Hours To Trade the Euro

    Six popular currency pairs and numerous secondary crosses offer euro traders a wide variety of short- and long-term opportunities.
  5. Trading

    Popular Forex Currencies

    Learn about the most traded currencies and the strategies used to trade them.
  6. Trading

    The Best Hours To Trade The Swiss Franc

    Diverse reporting schedules keeps Swiss franc forex markets active and liquid between midnight and noon U.S. Eastern Time.
  7. Trading

    Drastic Currency Changes: What's The Cause?

    Currency fluctuations often defy logic. Learn the trends and factors that result in these movements.
RELATED FAQS
  1. Why isn't the EUR/USD currency pair quoted as USD/EUR?

    In a currency pair, the first currency is called the base currency and the second is the quote currency, a longtime convention ... Read Answer >>
  2. How often do exchange rates fluctuate?

    Learn how exchange rates fluctuate. Exchange rates float freely against one another, which means they are in constant fluctuation. ... Read Answer >>
  3. How are international exchange rates set?

    Knowing the value of your home currency in relation to different foreign currencies helps investors to analyze investments ... Read Answer >>
  4. Can I trade a currency when its main market is closed?

    In the forex market, currencies from all over the world can be traded at all times of the day. The forex market is very liquid, ... Read Answer >>
  5. How is spread calculated when trading in the forex market?

    First, remember that in the forex markets investors trade one currency for another. Therefore, currencies are quoted in terms ... Read Answer >>
Trading Center