Cross Rates. What is it?

What Are Cross-Currency Rates?

Let’s break down the concept of cross-currency rates, also known as “currency crosses” or simply “crosses.” This term refers to currency pairs that do not include the US dollar.

 

Historically, exchanging one currency for another required first converting it into US dollars and then converting those dollars into the desired currency.

Why Are Cross-Currency Rates Important?

 

In the past, if you wanted to exchange British pounds for Japanese yen, you would first have to exchange pounds for dollars and then convert those dollars into yen.

 

With the introduction of cross-currency rates, this process has been simplified. You can now directly exchange one currency for another without involving the dollar. Examples of cross-currency pairs include GBP/JPY (pound/yen), EUR/JPY (euro/yen), EUR/CHF (euro/franc), and EUR/GBP (euro/pound).

Benefits of Cross-Currency Rates

1.Simplified Transactions: Eliminates the need for intermediate conversions through the US dollar.

2.Portfolio Diversification: Allows traders to explore opportunities across a wide range of currency pairs.

3.Flexible Strategies: Traders can discover profitable setups in non-USD pairs.

How Are Cross-Currency Rates Calculated?

 

While modern platforms handle calculations automatically, it’s useful to understand the basics. For instance, if you need to calculate the GBP/JPY rate, you would rely on two components:

•GBP/USD (pound to dollar);

•USD/JPY (dollar to yen).

 

These pairs are often called the “legs” of the cross-currency rate, as the US dollar serves as the common denominator.

Example of a Cross-Currency Rate Calculation

 

Imagine you have the following data:

•GBP/USD: 1.5630 (bid price) / 1.5635 (ask price);

•USD/JPY: 89.38 (bid price) / 89.43 (ask price).

 

To calculate the bid price for GBP/JPY:

1.5630 × 89.38 = 139.70.

 

To calculate the ask price for GBP/JPY:

1.5635 × 89.43 = 139.82.

 

Final result: The cross-currency rate for GBP/JPY is 139.70/139.82.

How Does This Apply to Cryptocurrency Markets?

 

The principles are similar for cryptocurrency trading. For instance, the pair ETH/BTC can be calculated using two pairs:

•ETH/USDT (Ethereum to Tether);

•BTC/USDT (Bitcoin to Tether).

 

If ETH/USDT is priced at 1800 and BTC/USDT at 30,000, the ETH/BTC rate would be:

1800 ÷ 30,000 = 0.06 BTC per 1 ETH.

Why Should You Learn About Cross-Currency Rates?

 

Cross-currency rates unlock numerous trading opportunities in various markets. They’re particularly useful if:

•You’re seeking better trading conditions beyond dollar-based pairs.

•You want to avoid high conversion fees.

•You’re dealing with regional currencies or tokens where the US dollar is not the base asset.

Courses by Ronin Academy: Mastering Cross-Currency Rates

 

At Ronin Academy, we go beyond the basics to teach you how to leverage cross-currency rates across various markets, including forex, cryptocurrencies, and commodities. Here’s what we offer:

•Step-by-step lessons on calculating and analyzing cross-currency rates.

•Real-world examples from active markets.

•Practical strategies to minimize errors and maximize profits.

•Insights into advanced tools for cross-currency trading.

 

Join Ronin Academy today and discover how to use cross-currency rates to unlock your trading potential!