Can you help me understand the pricing you show with regards to currency spreads? I have attached the recent chart for AusD/Yen spread that is currently one of the spread trades. If I look at the pricing, it shows yesterdays price at 20,615 but if I subtract the price of yen from AusD, I get a much different number. This seems only to be on currency trades, Can you help me understand how currency spreads are priced?
For those currency contracts that are the same size, the calculation is the same as with grains, for example. The A$ and C$ are the same size with the same value for a minimum increment. The SF, the EU, and the JY have the same dollar value for the minimum increment. For those, MRCI simply places the decimal two places to the left of the minimum (whole) increment and subtracts one from the other.
But for any spread between currency contracts with different values for minimum increments, we must first convert each currency contract to its equity value (in US dollars) before subtracting the short side from the long side. So, for example, on August 25, the Dec Japanese Yen (JYZ) closed at 0.006846 US$/Yen and the Dec Australian Dollar (ADM) closed at 0.6496 US$/A$. To properly calculate the spread, we find the equity value (in US$) of the long side and the equity value of the short side and subtract the value of the short side from the value of the long side as follows:
ADZ = 0.6496 US$/A$ x 100,000 = US$64,960
JYZ = 0.006846 US$/Yen x $12,500,000 = US$85,575
JYZ/ADZ spread = US-$20,615
