FOREX THEORY
What is a Currency Cross Pair? (Part 2)
Calculating Currency Cross Rates
Warning: This part is a little boring…unless you like
numbers. It’s not difficult but it can be kind of dry. The good news is that
this section really isn’t necessary anymore since most broker platforms already
calculate cross rates for you.
However, if you are the type that likes to know how
everything works, then this section is for you! And besides, it’s always good
to know how things work right? In this section, we will show you how to
calculate the bid (buying price) and ask (selling price) of a currency cross.
Let’s say we want to find the bid/ask price for GBP/JPY. The
first thing we would do is look at the bid/ask price for both GBP/USD and
USD/JPY.
Why these 2 pairs?
Because both of them have the U.S. dollar as their common
denominator.
These 2 pairs are called the “legs” of GBP/JPY because they
are the U.S. dollar pairs associated with it.
Now let’s say we find the following bid/ask prices:
GBP/USD: 1.5630 (bid) / 1.5635 (ask)
USD/JPY: 89.38 (bid) / 89.43 (ask)
To calculate the bid price for GBP/JPY, you simply multiply
the bid prices for GBP/USD and USD/JPY.
If you got 139.70, good job! Your calculator is working
properly, yipee!
To get the ask price for GBP/JPY, just multiply the ask
prices for GBP/USD and USD/JPY and we get 139.82. Easy as pie!
 Calculating Currency Cross Rates Warning: This pa...){kind=link}
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