Trading in both the foreign exchange and cryptocurrency markets is not limited to the ratio of the US dollar to other currencies or cryptocurrencies.
It just so happened that, by analogy with the US dollar in the Forex market, in the cryptocurrency market, the main assets to which altcoins are quoted are Bitcoin, Ethereum and Tether.
Having entered any cryptocurrency exchange, you will notice that its list consists of such direct quotes as: ADA / BTC, XMR / USDT, QTUM / ETH, and so on.
But sometimes it becomes necessary to transfer your position from one altcoin to another. And here we have a need to calculate the so-called cross-rate, which implies a direct relationship between the price of altcoins, which are not considered to be the main assets, in order to determine the feasibility of such an operation even before it is made.
Cryptocurrency cross rate calculation
Let’s say we want to know the ratio of the value of the Cardano cryptocurrency to the Qtum cryptocurrency in order to transfer our investments from the first asset to the second.
In this case, as with the direct ADA / BTC relationship, Cardano will be a commodity, while Qtum will play the role of a means of payment and the final asset into which our capital from Cardano will be transferred.
Now, in order to calculate the amount of Qtum that we have to pay for Cordano, we need to calculate the cross rate using one of the main cryptocurrencies in this operation: Bitcoin, Ethereum or Tether.
To do this, take the following cryptocurrency pairs:
- ADA / BTC at a rate of 0.00002083;
- QTUM / BTC at a rate of 0.00190166.
We now know how much Bitcoin we need in order to buy each of the exchanged altcoins.
And we carry out the following cross-exchange operation:
ADA / QTUM = 0.00002083 / 0.00190166 = 0.010953588 QTUM
Thus, we got the result that allowed us to calculate the cross-rate of the ADA / QTUM ratio, which determines the price for one Cardano in the Qtum cryptocurrency, which is 0.010953588 QTUM.
Now, knowing the cross rate of two non-tradable altcoins directly, it will be easy for us to determine how much our deposit will change when we switch to Qtum. To do this, it will be enough to simply multiply the amount of the Cardano cryptocurrency we have by the result obtained during the calculation of the cross-rate.
For example:
We have 1000 Cardano, which at a rate of 0.00002083 BTC is 0.0283 Bitcoin. Now, to get this amount in Qtum, we need to multiply 1000 ADA by the rate of 0.010953588, and we will receive a deposit equal to 10.96 QTUM.
Such a simple operation allows us to easily navigate the situation, in the case of transferring our balance from one altcoin to another, while easily determining both the profit potential and assessing the possible risks even before we proceed directly to the transaction itself.