What is a cross, and why did it once cost you two trades?
A cross is a currency pair that does not include the US dollar. EUR/GBP, EUR/JPY, GBP/JPY, AUD/NZD, EUR/CHF, CAD/JPY — pairs between two currencies that both have plenty of trade with each other and no particular need for a dollar in the middle.
You will also hear minors, used loosely for the liquid non-dollar pairs. The terms overlap and neither is official. The distinction that matters is structural: majors contain the dollar; crosses do not.
The historical accident in the name
The word "cross rate" is a fossil from a time when it described a real operation. To trade EUR/GBP thirty years ago, you very often had to do this:
- Sell euros, buy dollars (EUR/USD)
- Sell dollars, buy pounds (GBP/USD, in reverse)
Two tickets, two spreads, an unwanted dollar position sitting in the middle for however long the second leg took. The dollar was the vehicle — a currency you passed through without wanting it.
Today the liquid crosses are quoted directly and you trade them in one click. But look at where the price comes from. At the wholesale level, a EUR/GBP quote is still largely manufactured from the two dollar legs, which is exactly the arithmetic you did in the previous unit. The two trades became invisible; they did not become free.
Which is why crosses cost more
Recall the derivation. With EUR/USD 2 pips wide and USD/JPY 4 pips wide, the constructed EUR/JPY came out around 7 pips — the sum of both legs once converted into common units.
That is the general shape of it:
Cross spread ≈ leg spread + leg spread
So the ranking is predictable before you look at a single screen:
- EUR/USD — the tightest pair in the world, one leg only.
- EUR/GBP — two liquid legs, so a few times wider. Still very tradeable.
- GBP/JPY — two legs that are individually wider, plus a pair that historically moves in larger ranges. Wider again, and famous for it.
- A cross between two thin currencies — two wide legs compounded. This is where crosses stop being cheap.
The most heavily traded crosses — EUR/GBP, EUR/JPY, EUR/CHF — are genuinely liquid instruments with direct markets of their own, and their spreads are far better than the naive sum suggests. The rule is a ceiling, not a law.
Why anyone bothers
If crosses cost more, why trade them at all? Because for a great many participants the dollar is simply irrelevant to the exposure they actually have.
A German manufacturer paying a British supplier has a genuine EUR/GBP flow. Routing it through dollars would add a second spread and a second currency's worth of risk to a transaction that involves no Americans, no dollars and no US assets. The same is true of an Australian fund hedging a New Zealand holding, or a Swiss company with euro-area revenue.
There is also a cleaner analytical reason. A cross isolates a relative question between two currencies with the dollar removed. If you want to compare two European economies, EUR/GBP answers that directly; comparing EUR/USD against GBP/USD gives you the same information contaminated by everything happening to the dollar. Stating that is a description of what the instrument measures — not a suggestion that anyone should take a position in it.
Try it now
- All three legs are below: the cross first, then the two majors it is built from. Read the latest close off each and check the identity for yourself — EURGBP should come out close to EURUSD ÷ GBPUSD, exactly as the previous unit predicted.
- Do it again on a date a few weeks back. The residual should stay small and should not drift in one direction; if it did, somebody would be arbitraging it. What is left is timing — three quotes stamped at three slightly different moments.
- Now think about the pairs that are not here: AUDNZD, CADJPY, a cross with neither the dollar nor the euro in it. Fewer participants means a wider quote and a thinner record. Write down which of the two costs you more, and why the answer depends on how much you are moving.