We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bullish
Oil - US Crude
Bearish
Wall Street
Bullish
Gold
Bullish
GBP/USD
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Bearish
More View more
Real Time News
  • 🇪🇺 EUR German Unemployment Claims Rate s.a. (MAR), Actual: 2.3% Expected: 5.1% Previous: 5.0% https://www.dailyfx.com/economic-calendar#2020-03-31
  • 🇪🇺 EUR German Unemployment Change (000's) (MAR), Actual: 1k Expected: 25.0k Previous: -8.0k https://www.dailyfx.com/economic-calendar#2020-03-31
  • 🇪🇺 EUR German Unemployment Claims Rate s.a. (MAR), Actual: 5% Expected: 5.1% Previous: 5.0% https://www.dailyfx.com/economic-calendar#2020-03-31
  • 🇪🇺 EUR German Unemployment Change (000's) (MAR), Actual: 1K Expected: 25.0k Previous: -10.0k https://www.dailyfx.com/economic-calendar#2020-03-31
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 95.72%, while traders in US 500 are at opposite extremes with 71.66%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/fRKIEW9Qe9
  • Heads Up:🇪🇺 EUR German Unemployment Claims Rate s.a. (MAR) due at 07:55 GMT (15min), Actual: N/A Expected: 5.1% Previous: 5.0% https://www.dailyfx.com/economic-calendar#2020-03-31
  • Heads Up:🇪🇺 EUR German Unemployment Change (000's) (MAR) due at 07:55 GMT (15min), Actual: N/A Expected: 25.0k Previous: -10.0k https://www.dailyfx.com/economic-calendar#2020-03-31
  • Commodities Update: As of 07:00, these are your best and worst performers based on the London trading schedule: Oil - US Crude: 4.54% Silver: 0.77% Gold: -0.38% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/3CdfglYP4g
  • #Bitcoin prices may see a pickup in volatility ahead of the 2020 halving as the #coronavirus pandemic threatens to disrupt cross-continental $BTC mining operations. Get your market update from @ZabelinDimitri here: https://t.co/BoH24MVf4P https://t.co/yuEA4wdlS9
  • Forex Update: As of 07:00, these are your best and worst performers based on the London trading schedule: 🇦🇺AUD: 0.06% 🇳🇿NZD: -0.05% 🇨🇦CAD: -0.17% 🇨🇭CHF: -0.48% 🇯🇵JPY: -0.61% 🇬🇧GBP: -0.87% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/hOyPH71ZfE
How To Trade A Synthetic Currency Pair

How To Trade A Synthetic Currency Pair

2014-01-06 20:00:00
Walker England, Forex Trading Instructor
Share:

Talking Points

  • Based on liquidity, not all currencies are matched for trading
  • Two USD currency pairs can be linked to create a third synthetic pair
  • Be creative in your synthetics but always monitor spreads and interest

It is imperative that new traders in the Forex market become familiarized with currency pairs and The Majors. While this is always a good place to begin your learning, what happens when you want to trade a non USD currency cross? If you are looking to trade pairs such as the exotic EUR/MXN (Euro / Mexican Peso), the answer will be through the use of a synthetic currency pair.

To help, today we will review the basics of a Synthetic currency pair and how you can create your own inside of your trading platform.

Synthetic Currency Pairs

So what exactly is a synthetic currency pair? A synthetic currency pair is one that is not listed, or not carried by brokers and other liquidity providers. Normally these pairs are not carried due to thin trading activity as a result from limited economic activity and capital flows between the two respective economic regions. However, even though a currency pair isn’t listed doesn’t mean you can’t create your own! A synthetic currency pair is created when we use two alternative pairs to create a third unique currency pair!

Now let’s learn how to create a synthetic currency of our own.

Creating a Synthetic

Traders can create virtually any Synthetic currency through trading two separate USD positions. For example earlier in the article, we mentioned a trader may want to trade the EUR/MXN currency pair. While this pair is not actively quoted, it can be replicated by trading both the EUR/USD and USD/MXN currency pairs.

In this scenario, if a trader wants to BUY the EUR/MXN, the EUR/USD should be bought putting the trader Long Euros and Short US Dollars. Then the USD/MXN can also be bought, adding a Long US Dollar position and Short Peso position in the mix. Once this is done the Dollar positions effectively cancel each other, leaving the trader Long Euros and Short Pesos!

As seen in the image below, this process can be replicated to also create a synthetic Sell position on the EUR/MXN.

How To Trade A Synthetic Currency Pair

Costs of Trading Synthetics

As with any currency transaction there is a spread associated with creating a synthetic currency trade. Since you are opening two individual positions to create a third synthetic trade there will be a spread associated with each transaction. As well traders should consider the interest rate differential between the countries they are trading between. Since there are three countries involved in a synthetic currency transaction this should be monitored as it may negative or positively affect the trade’s profitability.

---Written by Walker England, Trading Instructor

Follow me on Twitter at @WEnglandFX.

To be added to Walker’s e-mail distribution list, CLICK HERE and enter in your email information.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.