What is the Mid-Market Rate?

Mid-Market Rate Explained

There are many terms used in currency exchanges and payments that can be confusing. One of these is the mid-market rate, which you may have seen countless times in international payments between financial institutions.

I’ll explain what mid-market rate means and how to calculate it, so you don’t have to worry about missing out on any opportunities.

What Is the Mid-Market Rate?

The mid-market rate or middle rate refers to an average interest rate for currency exchanges or international payments between banks.

It can also refer to a specific exchange rate set by market participants (i.e., not fixed) as opposed to a fixed official rate like those found at your bank’s ATM or online banking page.

You may be aware that the mid-market rate changes regularly depending on the bank and market conditions. The Bank of Canada collects mid-market quotes every minute between 8:00 and 16:00 ET.

The mid-market rate is top secret. Many banks and Electronic Funds Transfers (EFT) services don’t want customers to know. They set these rates between each other. And they don’t directly pass the rates to customers.

Instead, they mark up so much more to make some extra cash from you and me.

What Is FX Rate?

FX or foreign exchange rate is the rate at which one currency can be exchanged for another. In other words, it is the price of a foreign nation’s money in terms of my country’s currency.

The FX rate changes every second on the foreign exchange market.

For example, 1.00 Canadian Dollar = 0.81003509 US Dollars, but this may change depending on market conditions.

You can find up-to-date FX rates on major financial websites like Google Finance, Yahoo! Finance, and Bloomberg.

When a company is paid in a different currency than the one it uses to purchase goods and services, you may need to carry out an FX transaction.

This means that businesses need Accounts Payable departments, which have access to easy and fast international payments through their banks or financial institutions.

So How Do You Calculate Mid-Market Rate?

The mid-market rate can be calculated by taking an average of all buy and sell rates from market participants.

This helps to avoid large variations in currency conversion prices, which can be attributed to several factors, such as lack of liquidity or significant changes in supply and demand for different currencies.

Alternatively, find a publicly available source that provides exchange and conversion statistics. Places like Google or XE Currency Converter are great for this purpose.

Or, simply search “currency converter” in your favorite search engine and pick one of the free options that come up.

Then, enter your desired currency and the currencies you want to convert into or from for a mid-market rate calculation.

The calculation of this number varies depending on who’s doing it and what type of calculation they’re using.

The big banks tend to use their internal models for various reasons. But the end result is that there are generally significant differences between what you see on online banking sites and what’s happening in the market.

How to Find the Best Exchange Rate

In today’s globalized economy, businesses need to be aware of exchange rates. Some use a bank or credit card company for currency conversion services while others manage these conversions themselves in-house with the help of an FX specialist. Follow these steps to find the best exchange rate:

1. Identify the currency you need to convert from and to. For example, if you have a payment in Euros, it needs to be converted into Canadian dollars before being processed through your business bank account.
2. Determine who can provide you with this rate: A credit card company or an FX specialist? Credit cards might not always offer competitive rates and may also include a markup.
3. Calculate the rate: You can use an FX calculator to figure out the best exchange rate for my needs. This will help you make sure that you’re not losing money by using one financial institution over another.

The Difficulties (Markup) in Exchange Rates

It’s not uncommon to encounter difficulties when dealing with currency conversions. And this is due to the markup that credit card companies have on their rates. That means that you may never see the full amount someone sends you.

Also, the people you send money to may complain that they don’t receive the full amounts due to exchange rate transaction fees.

You, sometimes, run to FX specialists to exchange currency. But then again, you need to consider that credit cards are more convenient because they’re accepted everywhere whereas an FX specialist is not always accessible. What’s important here though, is that you make the best decision for your small business

That said, use Simplypay, a Canadian fintech platform, to pay domestic and international invoices via bank to bank (EFT/ACH) or credit card. Simplypay comes with many benefits, including low transaction charges and no hidden fees.

Help friends and family avoid the markup with a better alternative, Simplypay. Share with them how they can pay you or any of their bills or send money abroad with Simplypay.