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.