Mid-market rates in currency exchange and trading: The ins and outs.
Before I go to explain the details, Mid-market rates in simple terms are the middle point between how much currency exchange services are willing to buy and sell one currency for the other. The rates you get when buy items denominated in a different currency, e.g on Amazon, Google Play, forex bureaux and at the banks are transactional rates. Meaning the platforms where you carry out the exchange add the cost of the transaction to the exchange rates so they can make profits. It is that simple. So the mid-market rates are the median between the transactional buy and sell rates. Mid-market rates are the true reflection of what you should actually be getting in a fair currency exchange process. They are the rates you usually see on Xe.com and Google Exchange. The bankers sometimes call is interbank rates.
Now the details…
On the global exchange trading and exchange market, different rates are used to determine how much currency you end up with when you are converting one currency to the other. Exchanges like banks and forex bureaux display the following
- Sell rate: This is how much the bank is selling the currency to you and how much you are buying it for
- Buy rate: This is what the buyers will buy your currency in exchange for the other. To you the customer, this his how much you are selling your currency to the bank, payment gateways or forex bureaux.
For instance, if a customer wants to exchange US dollars to Ghana Cedis, the intermediary (bank, ATM, POS or forex bureau) will quote a rate of
$1 = GHS5.4 (note this)
Here, the customer is selling to the intermediaries
On the other hand, if the same customer wants to buy USD with Ghana Cedis, i.e exchange Ghana Cedis to US Dollar, the intermediaries will quote
$1 = GHS5.6 (note this as well)
Here again, the bank is willing to sell the USD to the customer at a higher rate than when they are buying.
How mid-market rates are better
Remember that in the previous discussions I came up with 2 rates that you either sell or buy the USD with Ghana Cedis
Mid-market rate = (buy rate + sell rate)/2
In the example above, the mid-market rates will be:
(5.4 + 5.2)/2 = 5.3
What it means is that the mid-market rate is $1 = GHS 5.3
Why mid-market rates are better.
From the previous analysis, a mid-market rate of 5.3 is better for the customer because it is lower the buy rate of 5.4 and higher than the sell rate of 5.2. It means that the customer gains in both ways whether in buying or selling currencies during the exchange.
Most banks and exchange services providers do not like giving mid-market rates because it erodes their profits. The rates they charge have transaction costs embedded in it which comes at a cost to the user.
YENSESA gives you mid-market rates + lower fees
Yensesa is a product that its founders used to solve the problem they face. We are “normal” people like you and understand what it means to lose even $20 when sending money to family and friends. We feel the pain also. We, therefore, apply mid-market rates and also reduced 5x the fees you pay when sending money.
Register for a Yensesa account by clicking here and join the community of like-minded people and send money in a fast, secure and cheaper way. Yensesa is BeyondRemittance
