Reader Questions Answered

Trading currency crosses direct or through the legs

The following question came in from one of my newsletter subscribers the other day. It asks about whether trading is actually done in currency cross rates, or only through the dollar.

Hi John,

I noticed that the cross pairs are the product of it’s two legs. So if one of the legs goes up and the other stays the same, the cross pair must go up. But is the cross pair always a dependent variable that is never bought/sold directly? If I buy the eur/chf pair am I always really buying the usd/chf and the eur/usd?

When the SNB intervened to peg the eur/chf at a floor of 1.20, did they buy euros directly with chf? And if so, how did the usd/chf and eur/usd move so that they maintain the product equation; which one goes up and how much? Or did the SNB buy usd/chf and then buy eur/usd? And if they are afraid to intervene again because they don’t want to buy euros that might be devaluing rapidly, can’t they just only buy the usd/chf and thereby raise the eur/chf automatically?

Thank you so much for all your time and replies.


While it is true that in many cases cross exchange rates (generally considered to mean those that do not include the USD) are derived mathematically from their legs, they do in fact trade in their own right as well. You will actually notice in my post The Most Traded Currency Pairs that the last two entries on the list of top global pairs are the EUR/JPY and EUR/GBP crosses. That said, crosses do tend to trade most actively in their related time zone. For example, there won’t be much AUD/NZD trading done outside the Asian session each day.

As for the Swiss National Bank (SNB), they most certainly intervened in EUR/CHF when they set the floor on that exchange rate. They’ve been seen in the other CHF pairs as well, but they are most interested in the euro cross, so it is the most efficient path to their objectives. If they did something like buying USD/CHF to try to influence EUR/CHF they run the risk of generally raising the value of the dollar across the board such that EUR/USD falls in the process, dampening the desired impact of their intervention.

It is important to remember that every USD pair is impacted by the supply/demand dynamic of the dollar, not just one given pair, which is why you so often see all the USD pairs moving in close unison. The same is true of every currency.

2 replies on “Trading currency crosses direct or through the legs”

Just a question. How does the EURUSD and USDCHF react when there is direct buying in the EURCHF? Do they both go up a proportional amount, or just one goes up the corresponding amount to make the triangle equation and which one?
Thank you very much.

Jon – It’s going to come down to whether the action in EUR/CHF is driven mainly by euro buying or Swissy selling. If the former, then you’d tend to see more impact on EUR/USD, while in the latter case the bigger impact would be on USD/CHF. In fact, looking at the action the cross can often tell you what’s driving the action in a major pair.

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