Introduction to Exchange Rates

Introduction to Exchange Rates

 

 

Introduction to Exchange Rates

 

This piece looks to simplify exchange rates in the digital asset world and gives the knowledge to make the best decision when buying or selling any cryptocurrency.

 

First, we can look at some of the most common foreign exchange rates, then a commodity exchange rate, and finally digital asset exchange rates.

 

FX Rates

 

Dollar / Euro =  1 / 1.1614 = .8610  = The Dollar is worth .8610 Euros

Euro / Dollar =   1.1614 / 1 = 1.1614 = The Euro is worth 1.1614 Dollars

 

Dollar / Pound = 1 / 1.2916 =  .7742 = The Dollar is worth .7742 Pounds

Pound / Dollar = 1.2916/1 = 1.2916 = The Pound is worth 1.2916 Dollars

 

Dollar / Yen = 1 / .009078 = 110.156 = The Dollar is worth 110.156 Yen

Yen / Dollar = .009078 / 1 = .009078 = The Yen is worth .009078 Dollars

 

By understanding these rates, now you can find the Pound / Yen or Euro / Yen , even though we did not show a quote for that pair.

 

 

Commodity Cross Rates

 

Gold = $1200

Silver = $14.77

Platinum = $796

 

Gold / Platinum = 1200 / 796 = 1.507 = Gold is worth 1.507 oz. of Platinum

Platinum / Gold = 796 / 1200 = .6633 = Platinum is worth .6633 oz. of Gold

Gold / Silver = 1200 / 14.77 = 81.24 = Gold is worth 81.24 oz of Silver

Silver / Gold = 14.77 / 1200 = .0123 = Silver is worth .0123 oz. of Gold

 

Platinum vs. Silver is not quoted often, but with this knowledge, you can calculate that rate in seconds.

 

 

$PAC and Trading Pair Exchange Rates

 

Moving on to Cryptocurrency.  I will use $PAC and its major trading pairs on Cryptopia as the example.

 

If one understands basic division and multiplication, this work exactly the same.  The eight decimal places in some of the pairings offer little utility so I will consolidate the example not using unnecessary digits.

 

With the highest volume and liquidity in the Bitcoin crosses, I will explain how one can find the “fair value” of other cross rates for $PAC and its trading pairs.  By taking this extra step, you will be able to find the best bid to sell and the best offer to buy in just a few seconds.  Often times, smaller orders may get overlooked, and many of the market making algorithms seem to not bother with these odd lots, but if you look around, you can pick up a bargain every so often.

 

Below are snapshots of the actual Tether Crosses at the time of this writing, courtesy of Cryptopia.

 

BTC

 

LTC

 

DOGE

 

$PAC

 

Based on these Tether quotes, we can calculate the bid and ask of all the cryptocurrency crosses.

 

$PAC / BTC  Offer = .00381 / 6665 =  .00000057

$PAC / BTC Bid = .0035 / 6689 = .00000052

 

LTC / BTC Offer = 57.97 / 6665 = .00869

LTC / BTC Bid =  57.32 / 6689 = .00856

 

DOGE / BTC Offer = .0025 / 6665 = .00000037

DOGE / BTC Bid = .00246 / 6689 = .00000036

 

 

Here are the actual markets

 

BTC – $PAC

 

BTC – LTC

 

BTC – DOGE

 

The Tether markets are wider for BTC – $PAC and BTC – LTC, but note the difference in the BTC – DOGE markets. If one is selling DOGE to buy BTC, it is more favorable to do so in the BTC pair, while if you are a buyer of DOGE to sell BTC the tether market offers better value.

Now, having the BTC markets, we can calculate what the LTC and DOGE pairings should be for $PAC.

If one has LTC and wants to convert them to $PAC, you would sell the LTC – BTC bid which is .00860206 then buy the offer in BTC – $PAC of .00000053

This now gives you the exchange rate for the LTC – $PAC pairing offer.

.00000053 / .00860206 = .00006161 = One $PAC is worth .00006161 LTC

We will estimate the bid for those wanting to trade $PAC for LTC

.00000052 / .00861352 = .00006037 = One $PAC is worth .00006037 LTC

These are the actual markets

 

LTC – $PAC

 

If transacting in LTC both buyers and sellers are being shown better price than in the BTC markets, but, the BTC markets tend to have greater liquidity so it really depends on the market depth one is looking for.

 

This is the LTC – DOGE market

 

 

 

Having this is the final piece for the calculation of the $PAC – DOGE fair value.

 

DOGE -$PAC offer is .00006141 / .00004318 = 1.4222

 

DOGE – PAC is .00006102 / .00004351 = 1.4131

 

This is the actual market

 

LTC – DOGE

 

In this last example, we actual find an arbitrage.  We can see that the market offer for DOGE – $PAC is 1.409.  This is below the bid in the LTC pairing for DOGE and $PAC so a buyer or a buyers algo may be interested.

 

These small values can add up over time.  Next time you are going to make a transaction and you have a few extra minutes, take a look at all the pairings of the cryptocurrency you are looking at.  You may be surprised that a bid or offer got overlooked.

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