01 / MARKET
Currency markets move
Exchange rates change as currencies are traded. The rate can move throughout the day.
EXCHANGE RATES
How exchange rates actually work.
An exchange rate tells you how much of one currency can be exchanged for another. The important question for a real transaction is which rate your provider uses and how that rate affects the amount you receive.
THE RATE JOURNEY
From market reference to your transaction.
There is no single number that automatically applies to every currency transaction. Reference rates, market rates and provider transaction rates can serve different purposes.
02 / REFERENCE
A reference rate is published
Institutions such as the ECB publish reference rates for information and comparison. These are not necessarily the rate used for a real transaction.
03 / PROVIDER
A transaction rate is applied
A bank, transfer provider or other service determines the rate applied to your transaction under its pricing model.
04 / RESULT
Your recipient amount changes
Even a small difference in the applied rate can change the amount received when the transfer is large enough.
KEY CONCEPTS
Three rates people often confuse.
Understanding the terminology makes provider comparisons much easier.
01 / REFERENCE RATE
Benchmark for information
The ECB describes its euro foreign-exchange reference rates as information-purpose rates. They are useful for comparison and analysis but do not necessarily represent the rate at which an actual transaction occurs.
02 / MID-MARKET RATE
Midpoint between buy and sell prices
The mid-market rate is commonly described as the midpoint between the buy and sell rates in the currency market. Providers may use it differently in their pricing and may add other costs.
03 / PROVIDER RATE
The rate applied to your transaction
The number that matters for your transaction is the rate actually used to convert your money. Check the provider's quote rather than assuming a reference rate is the transaction rate.
04 / FX SPREAD
The difference can have a cost
A provider can incorporate part of its economics into the exchange rate rather than showing every cost as a separate transfer fee. That is why the recipient amount is often more useful than the headline fee alone.
FINMAXER RATE MODEL
Compare the amount received, not just the rate.
Suppose you send an amount in your source currency. The exchange rate converts that amount into the destination currency. Any separate fee or other applicable charge then affects the total economics of the transaction.
Source amount
Amount you start with in the sending currency.
× applied rate
The provider's actual conversion rate for the transaction.
= converted amount
Destination-currency value before considering separate charges.
COMPARE A REAL QUOTE
Ask these six questions.
Use the provider's final quote rather than relying on a generic currency-converter result.
What rate is being used?
Identify the actual transaction rate shown for your currency pair.
What is the reference?
If a provider describes its rate relative to a market or reference rate, understand what that reference represents.
Is there a separate fee?
Check the explicit transfer or conversion fee in addition to the exchange rate.
How much arrives?
Use the expected recipient amount as the practical bottom-line comparison.
When is the rate fixed?
Some services guarantee a rate for a defined period; others use a live rate that can change.
Can the quote change?
Check whether the displayed rate and recipient amount remain valid until payment is received or completed.
Sources and methodology:
The European Central Bank explains that its reference rates are intended for information and may not reflect actual transaction rates. Wise explains the mid-market rate and notes that provider pricing can involve fees and that exchange rates can move. Provider-specific terms can change, so Finmaxer does not treat any one provider's pricing model as universal.
ECB — Role of exchange rates • ECB — Exchange-rate methodology • Wise — Mid-market exchange rate
ECB — Role of exchange rates • ECB — Exchange-rate methodology • Wise — Mid-market exchange rate
FINMAXER TOOLS
Turn the rate into a real decision.
Use the exchange rate together with the transfer fee and recipient amount.