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How to Choose a Currency Cross

By:

Chief Content Strategist

Trading foreign exchange markets can often feel like picking a winner at the Masters: you try to execute on a general opinion only to be met with a whole mess of choices.

So, what do you do in an asset class that seems straightforward yet is divided among too many options? You start basketing. Looking at driving distance? Choosing DeChambeau AND Cameron Champ could yield a higher probability of success. Putting accuracy interest you more? Picking the top two putters (Webb Simpson and Patrick Reed) might reduce your chances of picking the right category but wrong golfer.*

Choosing the Right Currency Cross

Traders can translate this strategy to the vast, intimidating world of currency crosses! For example, if you think Asian currencies will appreciate against the US dollar, then you could try buying Japanese yen AND Chinese renminbi against USD. This one degree of simplification already works to increase probabilities and reduce your fear of missing out.

Source: dxFeed Index Services (https://indexit.dxfeed.com)

Picking Direction in a Diversified US Dollar

Taking your ideas to execution using a product that offers diversified, basketed exposure similar to an equity index might be a more efficient alternative. Small US Dollar futures spread USD exposure across euro, yen, renminbi, and more, so you don’t have to stress out about picking to correct cross.

Small US Dollar \ SFX

Source: dxFeed Index Services (https://indexit.dxfeed.com)

As foreign exchange markets and golf tournaments heat up for the first time all year, you probably don’t want to research every player just to join in on the fun. Start with a simpler route to this opportunity.

Looking for a new way to trade stocks, commodities, and foreign exchange? Sign up for in-depth analysis on products that are small, standard, and simple from the Small Exchange: https://go.smallexchange.com/IBKRTC

*All stats from https://scores.nbcsports.com/golf on 4/8/21

Disclosure: The Small Exchange

© 2021 Small Exchange, Inc. All rights reserved. Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information in this advertisement is current as of the date noted, is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. Trading futures involves the risk of loss, including the possibility of loss greater than your initial investment.

Interactive Brokers Group, Inc., the parent company of Interactive Brokers, LLC, is a minority owner of Small Exchange Inc.

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from The Small Exchange and is being posted with permission from The Small Exchange. The views expressed in this material are solely those of the author and/or The Small Exchange and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.

Disclosure: Forex

There is a substantial risk of loss in foreign exchange trading. The settlement date of foreign exchange trades can vary due to time zone differences and bank holidays. When trading across foreign exchange markets, this may necessitate borrowing funds to settle foreign exchange trades. The interest rate on borrowed funds must be considered when computing the cost of trades across multiple markets.

Disclosure: Futures Trading

Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.

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