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.
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.
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.