Understanding Real-Time, Mid-Market Exchange Rates

The exchange of money from one currency to another occurs every minute of every day among banks, institutions and individuals. Therefore, making a wire transfer should be straightforward – you select the service provider, request the transfer, and provide the required information.

While wire transfers have become more efficient with the advancement of technology, they still have an unsettling element of hidden costs and surprises. The answer to this mystery cost lies in a concept few have heard of – middle-market rates, better known as mid-market rates.

The process of transferring money involves the sale of one currency to buy another at a defined exchange rate: the value of one currency against the other. Exchange rates fluctuate rapidly, and it’s important to understand this rate because it represents what you’re paying in hidden fees. Having efficient fx management solutions will help you tackle the complexities of your business.

What Is The Real-Time Exchange Rate?

The real-time rate (or live rate) is determined by real-time changes in the market between two currencies and is the latest available exchange rate. Due to their very nature, real-time exchange rates fluctuate all the time.

The easiest way to find out what they are at a given moment in time for a given currency pair is to track them online through public sources. Searching for exchange rates between two currencies on Google, Bloomberg, and Reuters gives you a real-time, mid-market rate, which is prone to delays.

What Is The Mid-Market Exchange Rate?

Also called the “spot rate”, “inter-bank rate”, and the “real exchange rate”, the mid-market price is essentially the middle rate between the buy and sell prices of two currencies when transferring money internationally.

Mid-market rates are primarily used by banks, building societies, FX traders, and financial institutions when they trade money between themselves. It is also regarded as the fairest, most transparent exchange rate and is used across the world.

Financial institutions take the mid-market rate and then apply a margin on top of that, passing the additional cost onto the customer. That is why it is crucial to check the exchange rate applied to your transaction, as well as whether it is in your best interest.

Why Is It Important?

For companies and individuals that deal with foreign currency exchange, this is an excellent way of learning where the value of any currency pair is trading. At the same time, it benefits both parties by not crossing the entire spread when executing their transaction. A mid-market exchange rate that is genuinely applied is generally seen as being transparent and accurate.

By understanding the mid-market exchange rate, you will get more value for your money when making an international money transfer, but you should not overlook other considerations as well.

Receiving fees: Some banks charge fees when they receive money from abroad, no matter what currency the money is sent in. It’s therefore important not only to consider the exchange rate and transfer fees but also any charges that may be applied on the other end.

Lock-in exchange rates: There are money transfer platforms that let you lock in a given exchange rate on a currency pair, so it’s important to think about how often you will be making international transfers.

In Conclusion

Ultimately, there is only one “real” exchange rate: the mid-market rate; all other exchange rates are subject to the specific bank’s internal policies.

In the past, customers generally paid whatever fees were charged for international wire transfers because they had very little power. Technology has empowered customers, and the paradigm has shifted. Using a few quick keystrokes, they can check mid-market rates, which gives them additional options and minimizes excessive fees.

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