How Currency Exchange Rates Work
Exchange rates determine how much of one currency you can get for another. The mid-market rate (or interbank rate) is the midpoint between the global buy and sell prices for a currency pair — it's the "true" rate you see on Google, Reuters, or Bloomberg. Banks and brokers add a spread (markup) on top, which is where they make their profit.
Rates fluctuate continuously during forex market hours (Sunday 5 PM ET to Friday 5 PM ET) based on economic data, central bank decisions, trade flows, inflation, and market sentiment. Major pairs like EUR/USD can move fractions of a cent (pips) every second during active sessions.
Mid-Market Rate vs. What You Actually Get
| Exchange Method | Typical Markup vs Mid-Market | Best For |
|---|---|---|
| Airport Kiosk | 8–15%+ spread | Emergency only |
| Bank Branch | 3–7% spread | Large, infrequent exchanges |
| Debit / Credit Card Abroad | 1–3% (network rate) | Travel spending |
| Wise / Revolut | 0.3–1% + small fixed fee | Regular transfers |
| Forex Broker (institutional) | ~0% (tight spread) | Trading / hedging |
Tips for Getting the Best Exchange Rate
- Avoid dynamic currency conversion (DCC) — When a foreign merchant offers to charge you in your home currency, always choose the local currency instead. DCC rates are typically 3–7% worse.
- Use a fee-free travel card — Cards like Wise, Revolut, or Charles Schwab (US) pass through the network rate with minimal markup.
- Plan large transfers in advance — For significant amounts (e.g., buying property abroad), use a specialist FX broker or forward contract to lock in today's rate for a future exchange.
- Watch central bank calendars — Rate decisions by the Fed, ECB, or Bank of England can cause immediate sharp moves in related currency pairs.
- Compare before you convert — Use this calculator to check the mid-market rate, then compare what your bank or service is actually offering.
Understanding Currency Pairs
Currency pairs are written as BASE/QUOTE (e.g., EUR/USD = 1.08 means 1 Euro buys 1.08 US Dollars). The base currency is the one you're selling; the quote currency is what you receive. When the rate goes up, the base currency has strengthened.
Major pairs (EUR/USD, USD/JPY, GBP/USD, USD/CHF) have the tightest spreads and highest liquidity. Exotic pairs involving emerging market currencies (USD/TRY, USD/ZAR) tend to have wider spreads and higher volatility.