Explain : Mid-Market Rate 📈
🚀In 2025, the global forex market will trade $10 trillion per day.
In 2022 it was $7.51T and growing with 12.27% YoY.
It is decentralized, extremely volatile, and reliant on supply and demand in the market.
🔮The key word here is decentralized.
Currencies are like commodities and the Forex rates are often uncontrolled.
The market forces are to blame. 🗿
🏛 A sizable amount of global currency is held by a small number of market participants, including some large banks.
🤝Bank treasury sets its own rate, which they refer to as the interbank or mid-market rate, after trading that with other banks.
➡️Additionally, commercial banks use it as the benchmark rate when transacting with others.
➡️ That’s why You see different rates on various FX exchange platforms because there is no central authority that sets the final rate.
Here are a few reasons behind them:-
- 📊Spread: The difference between a bank trading with its customers and trading a currency with another bank. For instance, the bank purchases money from clients at ₹83 and sells it at ₹86. Profit and spread are the ₹3.
Banks may charge a higher spread for rarer currencies with lower transaction volume and a smaller spread for currencies that are exchanged frequently and have high transaction volume.
2. 🪙Fee: Compared to online brokers and intermediaries, banks incur higher operating costs when handling and processing cash. Hence, online intermediaries pass on the cost savings to you in the form of lower fees.
3. 🌏Market Volatility: In order to offset their losses, banks typically increase the spread on currencies that are predicted to weaken or see a decline in demand.
4. ✒️Regulations and Taxes: The RBI’s regulations are subject to change based on international circumstances as well as its own assessment of supply and demand in India. As a result, transaction fees are always variable.
The good news for consumers is that new players are emerging who are working to fix transparent fee structures, even though banks frequently fail to maintain one when someone trades money with them.
🏗Our challenge as product builders is to provide customers with FX rates comparable to those of Google while preserving profitability and controlling risk.
