Big Mac Index explained: using the Big Mac Index in trading

The Big Mac Index is a common measure of exchange rates, but can it be used to make trading decisions? Find out what the Big Mac Index is and how it works.

What is the Economist’s Big Mac Index?

The Big Mac Index was created by The Economist in 1986 as a way of measuring purchasing power parity (PPP). It started as just a humorous way of explaining the economic theory, but it’s now a recognised exchange rate evaluation technique.

PPP states that there is a theoretical exchange rate that would allow you to buy the same amount of goods and services in every country. So, the real exchange rate should equalise the prices charged for a basket of goods.

In this case, the basket of goods is a McDonald's Big Mac – the fast-food chain’s most well-known product. A Big Mac uses the same ingredients in most countries (meat, bread, cheese, lettuce and onions), making it an easy comparison.

For example, if a Big Mac costs £3.79 in the UK, it should cost $4.67 in the US – based on a USD/GBP exchange rate of 1.23 (at the time of writing).

How to calculate the Big Mac Index

The Big Mac Index is calculated by finding the price of the iconic burger in each country’s currency. It then divides the burger’s price in one currency by its price in another country. This gives the implied exchange rate.

See the Economist’s Big Mac Index

What does the Big Mac Index show?

The Big Mac Index shows the price of the iconic burger in different currencies, which gives us a baseline for what the exchange rate should be. This can then be used to judge whether a currency is over or undervalued by comparing the implied rate and the real exchange rate.

As the real exchange rate is driven by market forces of supply and demand, it can vary considerably from the fundamentals of a currency’s value.

For example, as of January 2023 a Big Mac cost £3.79 in the UK and $5.36 in the US. This implies an exchange rate of 1.41, but the actual rate at the time was 1.23. So, it can be argued the US dollar was overvalued by 14.8% at the time.

Here’s a table of the Big Mac Index data, as of January 2023, showing currencies against the British pound.

Country	Currency	% +/-	Country	Currency	% +/-	Country	Currency	% +/-
Britain	Pound	Base currency	India	Rupee	-45.7	Romania	Leu	-41.7
Argentina	Peso	13.7	Indonesia	Rupiah	-49.6	Saudi Arabia	Riyal	8.4
Australia	A$	9.5	Israel	Shekel	8.3	Singapore	S$	-4.2
Azerbaijan	Manat	-38.3	Japan	Yen	-32.5	South Africa	Rand	-37.9
Bahrain	Dinar	-3.4	Jordan	Dinar	-24.6	South Korea	Won	-15
Brazil	Real	-4.9	Kuwait	Dinar	-1.8	Sri Lanka	Rupee	6.9
Canada	C$	-2	Lebanon	Pound	-4.1	Sweden	Krona	20.4
Chile	Peso	1.7	Malaysia	Ringgit	-35.5	Switzerland	Franc	55.5
China	Yuan	-24.2	Mexico	Peso	-10.1	Taiwan	NT$	-47.1
Colombia	Peso	-10.9	Moldova	Leu	-31.8	Thailand	Baht	-16.4
Costa Rica	Colón	6.4	New Zealand	NZ$	4.5	Turkey	Lira	-14.5
Czech Rep.	Koruna	-3.3	Nicaragua	Córdoba	-9.5	UAE	Dirham	5
Denmark	Krone	15.9	Norway	Krone	41.2	Ukraine	Hryvnia	-46.6
Egypt	Pound	-60.5	Oman	Rial	-21	United States	US$	14.8
Euro area	Euro	13.2	Pakistan	Rupee	-27.4	Uruguay	Peso	46.8
Guatemala	Quetzal	-26.2	Peru	Sol	-23.3	Venezuela	Bolívar	-41.7
Honduras	Lempira	-13.3	Philippines	Peso	-39	Vietnam	Dong	-34.2
Hong Kong	HK$	-42.5	Poland	Zloty	-12.3
Hungary	Forint	-19.5	Qatar	Riyal	-17.6

Sources: McDonald’s; Refinitiv Datastream; IMF; Eurostat; LebaneseLira.org; Banque du Liban; The Economist

How to use the Big Mac Index in trading

The Big Mac Index has its uses in economics, but it can give traders some insights into market movements too. It’s important to note that it’s not an exact science, but it works the same way as attempting to predict stock market corrections.

In theory, an undervalued asset will rise to its true price over time, and an overvalued asset will revert down.

So, if a currency is overvalued on the Big Mac Index, it’s likely the actual exchange rate will correct to reflect the cost of goods over time. This won’t happen instantly, so the index isn’t useful over the short or medium term but can give insights into longer-term trends.

Learn how to day trade forex

Is the Big Mac Index a good measure of PPP?

The Big Mac Index is seen as a good method of measuring PPP because, in theory, a Big Mac is the same in each country. So, the ingredient list provides an accurate and identical basket of goods to measure.

It’s also a good metric given that McDonald’s can be found in nearly every country, so the Big Mac Index can measure PPP where other reliable indices or official data aren't available.

However, in practice, Big Macs aren’t necessarily a perfect identical basket. They’re marketed differently and can even be made differently in different parts of the world. For example, in predominantly Hindu India, there are no beef burgers so a Big Mac there is the chicken Maharaja Mac.

Big Mac Index alternatives

There are a lot of Big Mac alternatives that measure baskets of goods – and therefore PPP. Some are more serious indices from reputable data sources, while others are more humorous – as the Big Mac was intended to be.

Examples include:

Consumer Price Index – the CPI is a widely used measure of PPP. Each country has its CPI index that tracks the price of a weighted average market basket of consumer goods and services purchased by households in the given economy. The data is released periodically by each nation’s statistics agency. For example, The US CPI is released by the Bureau of Labor Statistics, while the UK CPI is released by the Office of National Statistics
Tall Latte Index – this index was another creation from The Economist. It works in the same way as the Big Mac Index but follows the price of Starbucks’ Tall Lattes instead. It’s a much smaller data point than the Big Mac Index though, as it only compares the US dollar price against 16 other currencies

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.