Cross-currency exchange rates

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Cross Forex Exchange Rates

What is the cross currency exchange rate on Forex – definition, types of cross rates, calculation procedure. How to trade cross rates on Forex, advantages and disadvantages of cross rates.

What is the cross exchange rate for Forex?

Cross course – the ratio of the rates of two currencies, which is determined on the basis of their rate to the third. Since at Forex all currencies are quoted against the US dollar, the US dollar is the third currency. In the foreign exchange market, the concept of cross rate characterizes Currency Pairs without the participation of USD.

What cross rates do Forex have?

Currency cross rates can be conditionally divided into the following groups

  • cross rates with euro;
  • cross yen courses
  • cross rates with pound sterling;
  • commodity cross rates (with Australian, New Zealand and Canadian dollars).

On the interbank Forex currency market, the largest trading volumes have cross-rates between the main hard currencies: EUR / JPY, EUR / CHF, EUR / GBP. Sometimes GBP / JPY and CHF / JPY are also actively traded.

How is the cross currency rate calculated on Forex?

The cross currency exchange rate on Forex is calculated through the main exchange rates against the dollar (the exception is the EUR / GBP currency pair).

For example, for the cross rate of the euro against the yen EUR / JPY, the calculation formula is as follows:

Cross rate EUR / JPY

In numbers, it looks like this:

  • EUR / USD = 1,10227 (the current rate of the euro / dollar pair);
  • USD / JPY = 123,565 (current dollar / yen rate);
  • EUR / JPY = 1,10227 x 123,565 = 136,202 (current cross rate of euro / yen).

How to trade cross rates on Forex?

The analysis and forecasting of cross currency exchange rates on Forex practically do not differ from the analysis of the main currency pairs, however, they have a number of features.

  • First, you need to remember that the cross rate is a secondary indicator and, one way or another, depends on the dollar exchange rate on Forex, and not only on the state of the economy and monetary policy Central Bank of the respective countries.
  • Secondly, an analysis of the dynamics of cross currency exchange rates allows us to identify the rate of change in the exchange rates of major currency pairs. For example, with the strengthening of the dollar, the speed of movement of the EUR / USD and USD / CHF currency pairs will be different. Observing these currency pairs individually, it is very difficult to see the difference in speeds, however, analyzing the cross rate of the euro against the Swiss franc EUR / CHF makes it quite easy to see it.

Advantages and disadvantages of cross currency exchange trading

The constant interest in cross currency rates on Forex is due to their increased volatility. A correct analysis of the dynamics of the cross rate allows you to make a profit that exceeds the profit when trading in the main currency pairs for the same period of time.

Until recently, trading cross rates had a rather significant drawback – the spread was too large, which made cross rates unsuitable for use in some trading strategies (intraday, scalping, etc.). However, at present, most forex brokers for cross rates have spreads of a sufficient acceptable size.

The disadvantage of a large spread for some cross rates can be used to make a profit in trading. There are two ways to do this:

  • The first method

The use of a rebate service, in which part of the returned spread will be quite noticeable in comparison with the main currency pairs.

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  • second method

Using cross rate analysis for trading on major currency pairs.

For example, the analysis of the cross rate of the pound against the yen GBP / JPY suggests its further growth, that is, the yen will weaken against the pound. Instead of a long position at the GBP / JPY cross rate, you can open two positions in these currencies in relation to the dollar, that is, buy a pound and sell a yen. Even if one transaction turns out to be unprofitable, then the profit on the second transaction will block it, in accordance with the cross-rate ratio.

How to correctly predict the dynamics of currency pairs

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Whether you’re looking to convert your pounds to dollars, euros or any other currency, simply choose the currency you need below to see our rates of the day.

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[domesticExchangeAmount1] [domesticCurrencyCode] = [foreignExchangeAmount1] [currencyCode]

[domesticExchangeAmount2] [domesticCurrencyCode] = [foreignExchangeAmount2] [currencyCode]

[domesticExchangeAmount3] [domesticCurrencyCode] = [foreignExchangeAmount3] [currencyCode]

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How to calculate exchange rates

Exchange rates are influenced by banks and trading institutions and the volume of currency they are buying and selling at any given time. Currencies are traded (bought and sold) daily around the world.

One currency can be purchased by another currency through banking institutions or on the open market. The volumes of currencies traded are increased and decreased depending on the attractiveness of any particular currency, which depends on a multitude of factors such as political stability, economic strength, government debt and fiscal policy among others.

Government central banks also have the ability to set a currency at a constant price through a method called pegging, which essentially tethers the value of one currency to another. The value (or price) of a currency is determined by its traded volume. If a currency is competitively priced, traders will buy the currency, essentially driving up its value. If a currency is not competitively priced, traders may avoid buying, or even sell it, essentially driving down its value.

How to read exchange rates – currency jargon explained

Foreign exchange can be confusing, so to help break through the confusion, here are some common terms associated with currency:

  • Buy rate – This is the rate at which we buy foreign currency back from you into your local currency. For example, if you were returning from America, we would exchange your US dollars back into British pounds at the buy rate of the day.
  • Commission – This is a common fee that foreign exchange providers charge for exchanging one currency with another.
  • Cross rate – This is the rate we give to customers who want to exchange currencies that do not involve the local currency. For example, if you want to exchange Australian dollars into US dollars.
  • Currency Pair – This the the relationship between two country’s currencies. It is often denoted like this: GBP/USD, EUR/JAP, AUD/INR
  • Holiday money rate or tourist rate – This is another term for a sell rate.
  • Sell rate – This is the rate at which we sell foreign currency in exchange for local currency. For example, if you were heading to Europe, you would exchange British pounds for euros at the sell rate.
  • Spot rate – This is known more formally as the ‘interbank’ rate. It is the rate banks or large financial institutions charge each other when trading significant amounts of foreign currency. In the business, this is sometimes referred to as a ‘spot rate
  • Spread – This is the difference between the buy and sell rates offered by a foreign exchange provider such as us.

Exchange Rates FAQ’s

Why do currency exchange rates fluctuate?

Currencies constantly move up and down against each other as financial markets change. These movements can be caused by supply and demand, as well as by political and economic events.

Why are tourist money exchange rates not the same as the market spot rate?

The market (or spot) exchange rate, is the rate at which banks exchange currencies. There are a lot of processes and people involved in providing currency into your hands. There is a cost to doing this, which means that the value of the currency is affected to cover all of said cost.

At Travelex, we work to provide you with the best value on your foreign currency as possible. We are constantly striving to improve our systems and processes to make them more efficient, meaning that you get the best value for your travel money exchange rates from us.

Find out more on spot rates and tourist rates here.

Does it pay to shop around and compare rates?

There are a lot of foreign currency providers in the UK, offering you a range of products and services. With so much choice, it means that you can spend time to find the best exchange rate in the market. However, there is usually very little difference; it can be just a matter of pence.

Need some extra help with your currency?

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Not sure if it’s the right time to buy your currency? Let us do the hard work by monitoring the rates for you! We’ll email you when your chosen currency hits the rate you need.

*We compared the average cost of sending money abroad from the UK with Travelex Wire – in euros or US dollars across a range of values – against the average costs of sending equivalent sums abroad using the online services of leading money transfer providers in the UK. The price data used for the purpose of this analysis was obtained via online research between 1st June 2020 and 30th June 2020. Find out more here .

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