Synthetic Cross Rate

A synthetic cross rate is an exchange rate that is not quoted directly but derived from two other pairs that share a common currency, usually the US dollar. If a broker lists EUR/USD and GBP/USD but not EUR/GBP, dividing EUR/USD by GBP/USD produces the implied EUR/GBP price. When the shared currency sits on opposite sides of the two quotes, the rates are multiplied instead of divided. Banks build most cross rates this way, which is why a cross usually carries a wider spread: it inherits the bid-ask cost of both legs. Traders also use synthetic pricing to check whether a quoted cross is out of line, and to trade an exposure when the direct pair is unavailable or illiquid.