What Are Synthetic Currency Pairs?
Sometimes, institutional forex traders want to trade certain currency crosses—like GBP/JPY—but can’t due to low liquidity. They trade in such huge volumes that there may not be enough buyers or sellers to fill their order.
So what do they do?
They build their own trade using something called a synthetic pair.
How Do You Create a Synthetic Currency Pair?
Let’s say a big institutional trader wants to buy GBP/JPY, but the market isn’t liquid enough.
Instead of waiting around, they do this:
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Buy GBP/USD
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Buy USD/JPY
Since GBP/JPY = (GBP/USD) × (USD/JPY), the combination of these two trades replicates the price movement of GBP/JPY.
This works because GBP/USD and USD/JPY are both highly liquid, so they can enter large trades without a problem.
📌 These two separate trades are called the “legs” of the synthetic pair.
Should Retail Traders Use Synthetic Pairs?
Technically, yes—you could. But… it’s probably not a great idea.
Why?
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Most brokers now offer a wide range of currency crosses, including obscure ones like GBP/NZD or CHF/JPY.
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Spreads on actual currency crosses are tighter than what you’d pay by manually combining two trades.
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Margin requirements double when you open two positions instead of one, locking up more of your capital.
So unless you’re trading in “yards” (that’s one billion units of currency), building synthetic pairs is more trouble than it’s worth.
Bottom Line
💡 Stick to regular currency crosses.
They’re easier to manage, cheaper in terms of spread, and more efficient with margin. Save your brainpower—and your capital—for spotting better trade setups!