Multiplying or dividing midpoint quotes can produce a clean currency cross on a spreadsheet. A tradable route needs the correct side of each underlying market, plus the timing and size of both legs.
Transparency is the operating context
The FX Global Code sets out good-practice principles for the wholesale foreign-exchange market, including a commitment to appropriate transparency. The GFXC states that the Code supplements local rules and does not itself impose legal or regulatory obligations. The calculation below is original WFN analysis, rather than a pricing formula prescribed by the Code. GFXC — FX Global Code
Two spreads enter the synthetic cross
Assume simultaneous, executable quotes for equal-sized underlying legs: EUR/USD at 1.1000–1.1002 and GBP/USD at 1.2500–1.2503. All numbers here are invented, and fees are excluded. EUR/GBP expresses pounds per euro.
To sell euros for pounds, sell EUR at the EUR/USD bid, then buy GBP at the GBP/USD ask. The synthetic EUR/GBP bid is 1.1000 divided by 1.2503, approximately 0.879789. To buy euros using pounds, sell GBP at its USD bid and buy EUR at its USD ask. The synthetic ask is 1.1002 divided by 1.2500, or 0.880160.
The spread is about 0.000371 pounds per euro, or 3.71 pips where a pip is 0.0001. Using only midpoints would conceal that cost. An immediate hypothetical purchase and sale of 100,000 euros across these rates would lose roughly £37.12 before additional charges.
This calculation assumes that the quotes remain available throughout both transactions. If one leg fills while the second price changes, the realised cross can differ. Quote sizes, commissions and partial fills can also alter the amount converted.
A direct EUR/GBP quote might offer a better or worse route. The relevant comparison is the complete executable conversion for the same amount at the same time, rather than a midpoint from one route against a customer price from another.
Document the complete route
Keep the bid, ask, timestamp, available size and charges for each leg. State the direction of conversion before calculating anything: “buy EUR” and “sell EUR” require different sides of the market.
For a transaction review, reconcile the actual proceeds across both fills. A mathematically correct synthetic cross is a benchmark under stated assumptions; an execution record establishes what the conversion actually delivered.