How are exchange rates calculated?
Exchange rates [1] are calculated by averaging multiple market prices across various exchanges, weighted by volume traded on them in the last 24 hours (VWAP 24h).
To calculate the fair market value, we use both passive (Orderbook) and active (Executed transactions) market data.
Our algorithm uses direct and indirect symbols to calculate the exchange rate by crossing indirect symbols using central banks’ foreign exchange reference rates. For example, to calculate the exchange rates of BTC/USD, we also incorporate BTC/CNY, BTC/JPY, BTC/GBP, BTC/EUR.
Exchanges are representing a different level of market data quality. To account for that factor our algorithm uses trustworthy exchanges first and if the data could not be produced using this set of exchanges, for example, a specific asset requested is not available on any of the trustworthy exchanges, then we are using all other exchanges to produce requested data. This approach of combining credible and less trusted data sources, giving our customers an overview of the whole market without compromising the data quality.
Reference:
[1] https://docs.coinapi.io/market-data/rest-api/exchange-rates