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Category: Currency academy

What is the mid-market rate

The mid-market rate, also known as the interbank rate, is the mid-point between the buy and sell prices of the two currencies – what the buyer is ready to pay and what the vendor is ready to sell for. A genuinely applied mid-market rate is universally recognized to be the…

The mid-market rate, also known as the interbank rate, is the mid-point between the buy and sell prices of the two currencies – what the buyer is ready to pay and what the vendor is ready to sell for. A genuinely applied mid-market rate is universally recognized to be the most fair and correct foreign currency rate reflecting real-time changes within the currency markets.

Whever there’s a currency exchange, legacy banks would apply a significant “spread” to the mid-market rate. If you’ve ever sent money abroad then it’s likely you’ve been unfairly overcharged.

Mid-market rate and the rate spread

To understand the mid-market rates and how they work, you need to understand what a “spread” is. This spread refers to the margin or difference between the buy and sell rates. For example, let’s say that you’re using UK pound to purchase a Canadian dollar. To get 1 Canadian dollar, you will have to spend 0.59 GBP. But, if you reverse the order around and sell these pounds, you may only receive CAD$0.96. The difference between those two points is called the “spread,” and in this case, that spread is CAD$0.04.

It’s important to know the spread between the buy and sell points, but it’s also important to understand how those two points play into the mid-market rate. So what is the mid-market rate for the example above? You can find out by averaging the buy and sell points ($1.16 + $1.10 / 2 = $1.13). So in this example, the mid-market rate would be $1.13.

Rate margin example:

Right now the GBP to AUD mid-market rate gives us 1 GBP = 1.79 AUD.
If you convert 1,000 GBP you should get 1,790 AUD but instead banks would quote you a much worse rate (approximately 1 GBP = 1.74 AUD), receiving only 1,740 Australian dollars. This seemingly small rate difference and you get 60 dollars less. This is typical for most currency exchange kiosks and banks.

A small spread is justifiable, as any business have expenses, but if you need to transfer money abroad then your goal is to minimize the spread. Fintech platforms have ability to execute trades at the mid-market rate by cutting out intermediation.

Before you make a money transfer make sure to check the mid-market rate (you can Google “1 GBP to AUD”) and check how what’s the rate BUY/SELL rate your bank uses today. Or try wirecompare.com, as we do this pre-work for you, allowing you to get transparent real-time quotes with live mid-market rates and fees charged from top-rated companies to show you upfront the amount you get.

Remember you should be aiming to get the closest possible rate to the mid-market price, which is also called the interbank rate or the real exchange rate that is essentially the point between the buy and sell prices of any two currencies when you’re dealing with currency exchange or money transfer.

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International money transfer: are banks really the way to go?

Before performing any kind of currency exchange, it’s important to understand every step in the process thoroughly, along with associated fees. This ensures that you retain the maximum possible value…

Before performing any kind of currency exchange, it’s important to understand every step in the process thoroughly, along with associated fees. This ensures that you retain the maximum possible value for your currency, rather than lose out on hidden costs. It’s commonly assumed by many that their bank is the most practical solution for transfer, without fully understanding the hidden fees and inflated exchange rates offered.

In general, the charges related to international money transfer fall into two categories: exchange rate, or transaction fees. Exchange rates are often obscured by large banks, as some opt not to provide the information at all. The rate given is frequently one loaded with a commission. On the other hand, transaction costs involve things like overseas receiving or transfer fees.

The exchange rate actually offered by a bank may wind up being dependent on things like the volatility of the currencies you are dealing with, the amount being transferred, and the time-frame of your exchange.

Depending on your need, which may range from substantial purchases overseas to small transactions like sending money to family members, it’s often wise to investigate other options such as peer-to-peer exchange. These methods very frequently offer exchange rates that are less bloated with commissions, and are more transparent about the fees associated with transferring money internationally. In the future, we’ll have a look at how peer-to-peer exchange works, and what benefits it offers over more traditional methods of currency exchange.

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When is the best time to exchange currencies

Any time that foreign exchange currencies are being traded, be it in a money transfer or as an investment, it is a good idea to make a rudimentary analysis of…

Any time that foreign exchange currencies are being traded, be it in a money transfer or as an investment, it is a good idea to make a rudimentary analysis of the economic status in the countries issuing each currency. This process can help choose the best time to make the transfer, regardless of whether the aim is to maximize return or simply make the most efficient transfer possible.

A good economic indicator is the consumer price index, or CPI. This is the most readily accessible measure of the purchase power of a particular currency, and describes the price of a specific bundle of goods and services. By reflecting inflation rates, this is a great way of determining whether the average purchasing power of a currency is rising or falling.

Employment data is another highly relevant statistic in analyzing a country’s economic working. A higher demand for a particular country’s exports is usually reflected by a higher rate of employment, and it can be speculated that a greater volume of export is accompanied by a favourable rate of exchange for the issuing country.

A third method to build a quick insight into the size of a country’s economy is its gross domestic product, or GDP. This represents the value of a country’s goods and services over the span of a year, and a higher value is usually another good indicator of a greater demand for those goods and services. Once again, this results in a greater interest in the country’s currency from international investors.

Making a quick review of these factors before using a currency exchange service has the potential to give you insight into the best time to make a currency exchange. Waiting may, in some cases, be the best option for conserving as much value as possible.

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Basics of peer-to-peer foreign currency exchange

Peer-to-peer foreign exchange mechanisms are rapidly gaining popularity, and it’s easy to see why. The foreign exchange market even as of 2014 had surpassed a daily trading volume of $5.5…

Peer-to-peer foreign exchange mechanisms are rapidly gaining popularity, and it’s easy to see why. The foreign exchange market even as of 2014 had surpassed a daily trading volume of $5.5 billion.

In this arena, many peer-to-peer companies usually claim 75-90% savings on the typical fees associated with foreign exchange and the percentage taken from the total transaction by brokers and banks. In addition, peer-to-peer exchanges are almost always completed more quickly.

This is achieved by converting all international exchanges into simple domestic ones. Rather than moving currencies across borders, peer-to-peer firms allow clients to find other users matching their exchange needs and complete the transactions domestically within only a few days. Because this mechanism for foreign exchange is still gaining traction, on occasion it can difficult to find a suitable partner for exchanging less common currencies.

How does regulation work?

Building trust with clients is one of the most important aspects of developing traction for any peer-to-peer network. As a result, many such firms have taken steps toward being registered with regulatory bodies. Though this does not completely protect prospective clients, it can signal that the firm intends to deal in good faith.

One technique for ensuring honest dealing in foreign exchange is known as ringfencing. This means simply that all funds belonging to clients must be segregated by the firm’s own accounts at the end of each working day, protecting clients from loss in the event that the firm falls into financial hardship.

How do I choose a good peer-to-peer firm?

It’s important to always fully understand the risks associated with peer-to-peer exchange. Having said this, there are some basic guidelines that can be followed to choose the right service for your situation.

A good first step is to check the regulation status with relevant agencies, and whether or not client funds are segregated from the firm’s. These is always great indicators of the trustworthiness of a firm. Another good sign is the volume of transaction being handled. Make sure that the firm deals with your specific currency. This is especially important for smaller currencies.

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