Techniques for Currency Traders

Calculating cross rates is done by reference to the price quoted against the dollar for each currency. Care needs to be taken to ensure that the correct side of each quote is used when finding the cross rate. Remember that the market maker would need to buy and sell dollars against the currencies on the wrong side of the market to finance the cross rate position. He will be required to buy dollars at the market’s dollar offer rate, and sell them at the market’s dollar bid rate. For this reason the spread on such quotations will normally be wider than that for the constituent currencies against the dollar.