How exchange rates work: the mid-market rate vs the rate you get

An exchange rate is the price of one currency in another. If 1 US dollar costs 90 Indian rupees, the USD to INR rate is 90. The rate you see on a converter and the rate you are offered when you send money are often not the same number, and the gap is where the cost hides.

The mid-market rate

In the foreign exchange market every currency pair has a price to buy and a slightly higher price to sell. The mid-market rate is the midpoint between the two. It is the neutral benchmark that converters and news sites show, and it is the fairest number to compare against. The converters on this site use it.

Why you rarely get it

Banks, card networks, exchange counters and transfer apps make money on currency exchange in two ways, and often both: a margin built into the rate (they sell you a currency for more than the mid-market price) and a separate fee. A transfer that advertises no fee may still be expensive if the margin is large.

How to compare offers

1. Find the mid-market rate for your pair with the currency converter.
2. Ask each provider how much the recipient will receive in the end currency after all fees.
3. Compare the received amounts, not the headline rate or the fee on its own.
4. The difference between the mid-market result and what arrives is your real cost.

Why rates change

Most major currencies float: their prices move through the day with supply and demand in the market, driven by interest rates, trade, investment flows and news. A few currencies are pegged. The UAE dirham, for example, is held at about 3.6725 to the US dollar, so it moves against other currencies almost exactly as the dollar does.

Doing the arithmetic yourself

amount in B = amount in A x rate (A to B)
rate (B to A) = 1 / rate (A to B)

If 1 euro buys 1.10 dollars, 50 euros is 55 dollars, and 1 dollar buys about 0.909 euros. See the converter for a live example, or open a popular pair such as USD to INR.