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Chapter 22, Part I. Cross Pair – What the Beast is That? Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 22, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Let’s refresh on how to calculate crosses. We have discussed it in early chapters already, but you may have forgotten that, so now you will have a chance to remember. Also it will be useful if you want to understand how it works in detail.


    Cross Rate Calculation


    Let’s suppose that we want to calculate AUD/CHF rate. What pairs we have to apply to do that?


    Pipruit: And what we can do to reduce the probability of such losses?​


    Commander in Pips: The most common approach to this is to use not just one but two MAs on the chart.


    Pipruit: Anyway, I suppose that have the same common currency. Simplest answer is USD, and it may be better to use particularly US dollar due to the better liquidity of major pairs. But, I suspect that AUD/GBP and GBP/CHF also could be used for the purpose, since in this case both pairs again have a common denominator that could be used to “link” this pairs in cross rate.​


    Commander in Pips: Very good. You’re right that using of USD is preferable, since we will use major pairs, such AUD/USD and USD/CHF. The bid/ask spread is tighter with major pairs; hence you will get sharper number for AUD/CHF using them. Applying for that purpose other crosses, you will include larger bid/ask spread twice, since you will calculate cross pair via other cross pairs. So we will use the first way.

    Let’s assume that AUD/USD bid/ask price is 1.0679/1.0680, and USD/CHF is 0.8091/0.8092.

    So, to get bid for AUD/CHF you just need to multiply the bid AUD/USD by the bid USD/CHF:
    1.0679*0.8091 = 0.8640

    To get ask price for AUD/CHF you just need to multiply the ask AUD/USD by the ask USD/CHF:
    1.0680*0.8092 = 0.8642

    So, our quote for

    AUD/CHF is 0.8640/0.8642


    Pipruit: Bingo!
     
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