What is the mid-market rate? Your questions answered

PSD2, NFT, PCI-DSS, DeFi, B2B, P2P, OMG, YMCA. The last thing finance needs is more acronyms and jargon. No one knows every term, but if your business operates in multiple currencies, the mid-market rate is one that’s definitely worth knowing. 

Despite being one of the most crucial parts of the FX puzzle, it’s also one of the least understood. So we’ve set out to demystify the mid-market rate and answer some of the most common questions surrounding it. The most important thing to remember is that once you know the mid-market rate, you’ll understand the starting point for every FX transaction your business makes. 

What is the mid-market rate? 

The mid-market rate is the midpoint between what a bank or FX business is willing to buy a currency for and what they will sell it for. It is sometimes known as the ‘fair’ or ‘true’ market rate (as well as the interbank rate), as it is the most accurate possible rate of exchange. For example, if a European customer walks into their bank, they may be able to sell their dollars for €1.10. When a different European customer walks into their bank and wants to buy some US dollars, they buy them from the bank for €1.20. The €0.10 difference between the price for selling and buying is known as the spread. 

The mid-market rate is the point between those two prices, in this case €1.15, and it’s the baseline from which every FX transaction is calculated from. 

How do I find the mid-market rate? 

If you’re an OpenPayd client, you will have agreed pricing for FX which includes a small markup on the mid-market rate. The mid-market rate is constantly being updated as currencies fluctuate, and different organisations can use different data sets when calculating the mid-market rate which means it can vary slightly. However, these variations tend to be small. 

How does pricing usually work?

Banks and FX providers will structure their pricing in different ways. They usually use the mid-market rate to transfer between themselves, but will offer a different rate to businesses and consumers. Certain providers will attempt to make their pricing more attractive by offering ‘0% fees’ or ‘no commission’, but they have drastically marked up their rate to make their profit margin. 

OpenPayd will always offer the mid-market rate plus a small fee: to cover our costs and the charge passed down by our wholesale provider. All of our pricing is completely transparent from the offset, allowing you to see how we compare with other providers and how these fees are broken down.

Why does the mid-market rate matter for my business? 

Knowing the mid-market rate gives you the best starting point for all your FX transactions. If you’re a business which handles FX and your current FX provider doesn’t provide a breakdown of their fees, you can google the mid-market rate right now and compare it to what you’re being charged. This will allow you to see how much of a fee you’re paying on every transaction. 

Understanding the mid-market rate and its impact on your FX quotes gives you another data point that can then be used to tackle some of the broader strategic questions your business has. Shaving hidden costs off your FX transactions is a chance to lower your operational overheads, and could provide a competitive advantage when it comes to the fees you charge your clients. If you’re a remittance firm, for example, paying lower fees addresses one of the biggest pain points your clients have: pricing. Better pricing is the best advantage you can have in a highly competitive market. 

Does OpenPayd provide FX services for individuals? 

We’re afraid not. We only work with other businesses. 

Which currencies have a mid-market rate?

There is a mid-market rate for any two currencies that you pair together. It can always be found online. 

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The mid-market rate shows your business the ‘truest’ possible rate of exchange, and acts as the starting point for every FX transaction. The more transparency a provider gives you over it, the better you can understand what you will pay on every transaction and therefore make more informed strategic decisions. 

We think that’s a rate worth knowing about.