FX Markup
An FX markup is the difference between a reference rate — normally the mid-market rate — and the rate actually offered to the customer. It is the provider’s price for the conversion, and on a cross-border transfer it is usually the largest part of the cost.
Also called: exchange rate markup · exchange-rate margin · FX margin · customer margin · rate margin
A provider buys currency at or near the wholesale price and sells it to a customer at a worse one. The gap is the FX markup. Expressed as a percentage of the mid-market rate, or in basis points, it becomes comparable across providers.
A markup means nothing until the reference is named. The same customer rate can be described as 40 basis points against one source’s mid and 55 against another’s, because rate sources sample different venues at different instants. Larger discrepancies usually mean the provider is measuring against its own quoted rate, a daily fixed rate, or a wholesale rate that has already been marked up once.
Where the confusion sits
A markup is not the same thing as an FX spread. The spread is the bid/ask gap the market sets and everyone faces; a markup is what one provider chooses to charge one customer, and it is routinely many times wider than the dealing spread beneath it. Market participants nonetheless call a markup a “spread” constantly, so the word on the quote settles nothing. The number that settles it is the all-in cost.
In practice
A markup is measured against a reference rate, so the reference has to be stated before the number means anything. Market usage often calls this a spread, which is why quotes should be compared on an all-in basis — the amount the recipient receives, plus every fee — rather than on the label attached to the margin.
Example
A sender converts 10,000 US dollars. The provider’s rate delivers 0.8% less than the mid-market rate at that moment, so the markup costs 80 dollars of value; a 15-dollar transfer fee brings the total to 95 dollars. A competitor advertising no fee at all, but quoting 1.5% away from the mid, costs 150 dollars.
Commonly confused with
| Term | How it differs |
|---|---|
| FX Spread | The spread is the market’s bid/ask gap, faced by everyone in that pair; the markup is one provider’s margin over a reference rate, and the two are not synonyms however often the words are swapped. |
| Mid-Market Rate | The mid is the reference the markup is measured from, and carries no margin itself. |
| All-in Cost | The markup is one component; all-in cost adds every explicit fee and any deduction taken downstream. |
See also
- FX SpreadStrictly, the FX spread is the bid/ask spread: the gap between the price at which a currency can be bought and the price at which it can be sold at the same moment. It is a property of the market and of liquidity in that pair.
- Mid-Market RateThe mid-market rate is the midpoint between the price at which a currency pair is being bought and the price at which it is being sold — the rate with no margin added. It is a reference point for pricing, not a rate a customer transacts at.
- Basis PointA basis point is one hundredth of one percentage point — 0.01%. FX and payments pricing is quoted in basis points because small percentages are easy to misread: 25 basis points is 0.25%, and 100 basis points is 1.00%.
- All-in CostThe all-in cost of a transfer is everything the sender gives up: explicit fees, the FX markup built into the exchange rate, and any deduction taken downstream before the recipient is paid. It is expressed against the amount sent.