What is Mid Market Exchange Rate

Hint: This affects your Money Transfer !!

In our last blog, we discussed about the basics of currency Exchange Rates, how the currency values are determined and some of the factors that influence the exchange rates between 2 currencies.

While it is important to know the concepts behind the exchange rate, for your personal money transfer you need to understand what should be your reference exchange rate.

Now, if you are reading this, we understand you are interested in getting more value out of your international money transfers. So, read on and we will help you understand how to find out if you are getting the best exchange rates when sending money from one country to another.

If you do international money transfer to send money to your home country or have exchanged currencies for a foreign travel, you are already aware of the different currency exchange rates that different companies offer. The whole eco system of cross-border money transfer is based on the currency exchange rate. In this blog series, I am going to tell you about what this exchange rate is and how it affects your remittances. The small knowledge about it can save you big when you send money from one country to another.

As we know, the rate of any currency is determined based on the demand and supply. People and companies buy & sell currencies for trading or for making payments overseas for imports & exports. Usually traders in currency exchange market have two exchange rates –

  • Selling Exchange Rate or Ask Rate – at which sellers are willing to sell a particular currency.
  • Buying Exchange Rate or Bid Rate – at which buyers are willing to buy a particular currency.

But for all international money transfers, the rate you should use as benchmark for understanding the value you are getting for your money, should be what we call a “Mid Market Exchange Rate”

What is a “Mid Market Exchange Rate”?

Mid-market Rate is a currency exchange rate, which is the mid-point of sell rate and buy rate. This is the most transparent and the most accurate exchange rate. The real exchange rate between 2 currencies is this rate and this constantly changes since new bids are being created every second.

The middle rate is calculated using the median average of the bid and offer rates. The middle rate intuitively is the rate in the middle of the prices offered by the market makers.

It is also known as “Interbank Rate” or “Spot Rate” or “Real Exchange Rate”. This is the rate which independent sources like Reuter, Google, Xe.com & ofcourse remittance comparison platforms like ExchangeRateIQ.com etc show.

For Example – For USD to GBP conversion, if –

  • Buy rate = 0.78GBP/USD; means you can buy 0.78 UK pound for 1 US dollar
  • Sell rate = 0.76GBP/USD; means you can sell 0.76 UK pound for 1 US Dollar
  • Then, mid-market rate = 0.77 GBP/USD

The same is applicable to all other currency pairs like US Dollar to Indian Rupee, US Dollar to Peso, US Dollar to Euro & so on & so forth.

This is the established market rate. The Real rate, which defines how much one currency is valued against another at any given point of time. So, you should get the same value when sending money overseas right? Let’s find out.

Which Exchange rate do I get on my money transfer?

When you send money to another country, you do NOT get the most accurate mid-market exchange rate for your remittance amount. You get an exchange rate which is lower than the mid-market rate.

For example – You work in US and you need to send $1000 to your home in Mexico.

The mid-market exchange rate for US Dollar to Mexican Peso = 19.02 MXN/USD
The ideal amount to be received = 1000 * 19.02 = 19020 MXN

The exchange rate offered by remittance provider = 18.50 MXN/USD

The actual amount received = 1000 * 18.50 = 18500 MXN

The difference = 19020 – 18500 = 520 MXN

So, you get 520 MXN lesser per $1000 for your transaction. This is the amount that is usually pocketed by the money transfer service provider to cover the transaction costs, provide commissions to the agents and for profits.


Money Transfer Margins on Mid Market Exchange Rates


Now, if a user is not aware of the mid market exchange rate, this difference can easily be ignored. And this exchange rate margin makes big profit for remittance providers. In a lot of cases money transfer companies advertise “Zero Fees” but use this tactic to make profit.

This difference between the exchange rate & offered rate by money transfer operators could be as small as .01% or as huge as 6-8% depending on the country corridor and currency pair in question.

For some countries, like when sending money to India from USA, the margins are very low since it very competitive segment and every money transfer service provider wants to attract more customers by giving an enticing exchange rate. But for sending money within Africa, this difference could sometimes be as high as 20% (as per world bank statistics)

So, in conclusion, before you make any overseas money transfer transaction, take a minute to find out the mid market exchange rate and try to find out the difference between the real mid market currency exchange rates and the offered exchange rate to get an idea of the cost you are paying for sending money to your loved ones back home.

At Exchange Rate IQ, we want to make sure that our users have complete transparency when they are sending money. Hence for each country we provide the Mid market Exchange rate and showcase the difference between the mid market and offered exchange rate.

Comparing remittance before money transfer is important to identify the service that is offering the best exchange rate, the one that is closest to the mid market exchange rates. So, before you send money next time, make sure you compare money transfer services, exchange rates & Fees.

Stay tuned for the part 2 of blog to know how your remittance provider is alluring you with “0 REMITTANCE FEE” which is nothing but a myth.