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Scandinavian crosses: cheap on the screen, costly in practice

USDNOK, USDSEK, EURNOK, EURSEK. They offer decent volatility, and some brokers advertise them with acceptable spreads. What matters is how the spread behaves in practice.

Liquidity in these currencies is concentrated in a few banks. The market in Oslo and Stockholm is small compared with Frankfurt or London. When a large order arrives, price slides. Spreads on these pairs tend to be wide at the best of times and balloon around risk events.

Also, they are sensitive to oil and to European sentiment in ways that differ from the major pairs, so correlations learnt on EURUSD do not transfer.

If a strategy runs on them, it benefits from checking the spread at the time of the signal rather than the average. A common mistake is entering based on a model that assumed 1.5 pips when the real spread was 4.

Compared with a major pair, how big is the effective cost of trading these crosses on the broker's feed?

I tried EURSEK for a few weeks because the advertised spread looked fine and the pair seemed to move nicely during the European morning. My spreadsheet assumed roughly two pips of cost per trade. When I went back and checked the actual spread at each entry, the real average was closer to four and a half, and on a couple of trades near oil inventory data it was well over six.

That basically wiped out the edge. The setup itself was decent on paper, but scalping a pair where the cost swings that much meant every trade started deep in a hole. Compared to EURUSD, where my cost is a fraction of a pip most of the morning, it wasn't even close.

If someone wants to trade these crosses, I'd say widen the target a lot and treat them as short swing trades rather than scalps. Or add a filter that refuses the entry when the live spread is above a set number.