How to calculate cross-rates?
Forex currency transactions are carried out against the dollar and other currencies. For example, the euro against the pound, the yen against the Australian dollar and other cross-rates (K.-K.) is called the exchange rate between the currencies, if there does not include the U.S. dollar. Active buy / sell cross-currency exchange has a major impact on the foreign exchange rates against the U.S. dollar, and vice versa. Analyze and predict the cross-rates, particularly unsteady, it is difficult, because trading volumes are relatively small, and are subject to significant fluctuations on the initiative of the speculative players with more capital.
Knowing how to correctly interpret the dynamics K.-K., you can better predict the movement of the major currency pairs. Let's see how to set the exchange rate, as well as list some features K.-K. Rates are genuinely helping them to understand the movement and the relationship with other currency pairs.
How to set the exchange rate?
Allocate 2 methods Quotation Currency: forward and reverse. In the method of direct quotations cost per unit of foreign currency, which is bought, is expressed in the amount of currency that is sold. For example, one U.S. dollar is worth 30 rubles. In the method of inverse quotations unit cost of sold currency will be expressed in the amount of currency which is bought - in our example, $ 0.33 is equal to 1 ruble.
Most countries, including in Russia, the exchange rates are set according to the method of direct quotations when the value of the foreign currency will be expressed in units of the national currency.
Other features of the cross-currency
The trader must remember that cross-rates are a secondary indicator as calculated through the major currency rates against the USD. For example, the euro against the Japanese yen is calculated based on the value of both currencies against the U.S. dollar. But by analyzing the cross-rates can define different speed changes of the main foreign exchange rates, to assess how the rate changes. For example, if the dollar becomes more expensive, then against the euro and yen, it can occur at different speeds. If you watch the major exchange rate fluctuations, the speed differences may be subtle but it is clearly defined in the analysis of cross-rates.
The trader must know that the analysis and prediction of how cross-currency proceeds just as basic.
If the trading activity increases the cross-rates, trading volumes and actively growing, it has a direct effect on the main exchange rates. For example, actively sold euro against the Swiss franc, British pound and Canadian dollar - a decrease in demand for the European currency will lead to its reduction in price relative to the U.S. dollar (the currency pair GBP / USD). However, both the speed and strength of the euro against the cheapening of different currencies can vary significantly. It turns out that the analysis K.-K. Very important in the case of predicting the dynamics of major exchange rates and can often predict with a high probability of their dynamics.
On Forex have greater relevance and show the maximum trading volumes following K.-K. (On the main hard currencies): EUR / JPY, EUR / GBP, EUR / CHF. From time to time a good trading activity observed vapor CHF / JPY and GBP / JPY.
Even if you are not able to operate K.-K., you can perform these operations using basic exchange rates against the dollar. Say a trader sees that K.-K. EUR / JPY rising - it says about the weakening of the yen against the euro. So you should buy the European currency, to later sell it more expensive or sell yen to buy it cheaper later. Similar operations can be performed against the dollar while selling the euro and buying the yen. Even if the trader is losing one of the currencies, the profit on the other pair must overlap these losses respectively cross-correlation.
But most Forex brokers support many K.-K., including those needed for comparison with the major exchange rates. Therefore, there is no problem to find an alternative.
Some exotic currency cross rates may not be available, so they traded exclusively through the U.S. dollar.
Have you correctly interpret changes K.-K. Use this knowledge to profitable trading and remember that the gains from trade is highly dependent on the chosen broker!
Valuable than derivatives?