FX Spread
Strictly, 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.
Also called: bid/ask spread · bid-offer spread · exchange rate spread · buy-sell spread
Every tradable currency pair carries two prices at once. The bid is what a buyer will pay; the ask, or offer, is what a seller wants. The difference between them is the FX spread, and the mid-market rate sits halfway between the two.
The width of a spread is set by the market, not by any single provider. Major pairs in deep liquidity trade a few basis points wide or less. Thin, restricted or volatile pairs trade far wider, and the same pair widens outside local market hours, around data releases and at period end. A market maker earns the spread by standing on both sides of it.
Why the word is used two ways
In everyday payments conversation “spread” usually means something else entirely: the margin a provider adds for its customer, which is properly an FX markup measured against a reference rate. The two are not synonyms. A dealing spread is what the market charges everyone; a markup is what one provider charges one customer, and on a retail transfer it is routinely many times wider than the underlying dealing spread. A quote described as “a 0.5% spread” may be either, and the label alone does not say which.
In practice
Market usage is loose: the customer-facing margin is very often called a “spread” when it is strictly an FX markup measured against a reference rate. A quote of “0.5% spread” may mean either, so ask what the number is measured against — and compare providers on all-in cost rather than on the label.
Example
A bank’s dealing screen shows a pair quoted with a bid and an ask two basis points apart. That is the spread. The same bank’s payments desk offers a corporate customer a rate 90 basis points away from the mid-market rate and calls it “our spread”. The first number belongs to the market; the second is that bank’s price to that one customer.
Commonly confused with
| Term | How it differs |
|---|---|
| FX Markup | A spread is the bid/ask gap the market itself sets; a markup is the distance a provider puts between a reference rate and the rate it gives a customer. |
| Mid-Market Rate | The mid-market rate is a single number at the center of the spread; the spread is the width around it. |
| All-in Cost | The spread is one input to a price; all-in cost is what the sender actually gives up, fees included. |
See also
- FX MarkupAn 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.
- 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.
- Currency PairA currency pair is two currencies quoted against each other — EUR/USD, USD/JPY, GBP/INR. The first is the base currency, the second the quote currency, and the price says how many units of the quote currency one unit of the base is worth.
- Exotic CurrencyAn exotic currency is one that trades thinly — wide spreads, limited market depth, few willing counterparties, and often restrictions on converting or moving it. The label is about liquidity and tradability, not about geography or how unfamiliar the country is.
- Double Currency ConversionDouble currency conversion occurs when funds are converted into an intermediate currency and then converted again before reaching the beneficiary. The additional conversion can create another FX spread, extra fees and uncertainty about the delivered amount.
- CNY–CNH SpreadThe CNY–CNH spread is the difference between the onshore and offshore RMB exchange rates. It can reflect differences in liquidity, market expectations, funding conditions and restrictions on movement between the two markets.