Forget the Dollar!

Three Reasons Why More Forex Traders Are Avoiding the Dollar Altogether…

As the world’s reserve currency, the dollar is a major part of both international trade and daily spot trading in the Forex market. In fact, it’s estimated that the dollar makes up 1/3 of all trading in the Forex market on any given day.

But frankly, that doesn’t mean the dollar is the only game in town.

Today, more and more traders are turning away from the dollar and trading currencies outside the dollar. They’re taking advantage of tighter spreads, higher volatility and lower fees and diving into trades that go beyond the U.S. dollar.

Here are a few of the other reasons why they’re turning to currency crosses…

1). The U.S. dollar is the top-dog in trading around the world. That means any number of tiny factors can push the dollar back and forth. Interest rates, major political moves, not to mention global events in all corners of the world can send money rushing for (or away from) the buck.

2). U.S. news is the biggest mover of currency pairs (case in point: today’s Fed meeting announcement). That means the dollar can jump erratically based on that news. Some traders like to avoid that altogether, and technically trade other pairs that aren’t so vulnerable to the new.

3). Trading crosses offers more of a diverse trading portfolio than just trading EUR/USD, GBP/USD, USD/CHF, etc. If the dollar moves in a huge way, it’s going to affect all of those pairs even though they have other foreign currencies involved. However, if you have EUR/USD and GBP/JPY and you get a “dollar event” that moves EUR/USD, it doesn’t necessarily directly affect GBP/JPY. Therefore, you’ve diversified your risks.

Happy Trading!
Sean Hyman, Professor FX

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