I recently went to my bank to see if i can take 3000 of my money and convert it to Taiwanese Dollar. At the time, bank informed me the rate was 0.034882. However, when i checked online, the rate was different. I thought i would get $99,219.00 TWD, instead of the $86,100.00 TWD. Why is that?
XE.com General Questions
This is from the following web site and thoroughly answers your question.
http://www.xe.com/faq.php#midmarket
We obtain our rates from a wide variety of sources. We use advanced proprietary systems to factor in available data from all sources and automatically detect errors in the individual feeds. This allows us to generate a highly reliable composite data feed that is much more timely and accurate than any of the individual feeds.
We strive to always include the latest available market data from live, real-time rate feeds containing data from foreign exchange markets all around the world. Because it’s always daytime somewhere in the world, there is a good chance that a currency market somewhere is currently trading. Our sources are global, which means that data for a specific currency can be updated even when the markets of its home country are closed. Where a specific currency is not regularly traded, we use the most recent data available.
2. Are your "mid-market" currency rates buy rates or sell rates?
The mid-market rates shown in our information services are neither "buy" rates nor "sell" rates. Mid-market rates are derived from mid-point between the buy and sell rates of large-value transactions in the global currency markets.
Since "buy rates" and "sell rates" include overheads and profit margins that are set independently by each foreign exchange provider, they will vary depending on who you’re talking to, and will always be different than the mid-market rate.
An Example to Illustrate the Difference Between Buy Rates, Sell Rates, and Mid-Market Rates
Like any non-centralized, widely distributed market, the currency market has different prices when you’re buying and when you’re selling. As an example of how this market operatives, let’s consider a similar and familiar market: antiques.
Let’s say you find an antique lamp in your house. You look up the value of the lamp on the Internet and find that on average, the market value of your lamp is $200.
So you take the lamp to the antiques dealer and they offer $180 for your lamp. Yes, it may be technically worth $200, but the dealer has to buy it for a little less than market value in order to stay in business. So they buy the lamp from you for $180.
So next you go home, only to find out that the lamp was an important heirloom that should not have been sold. So you head back to the market to buy back the lamp. Luckily, they haven’t sold it. You see the lamp in the store window, but now the price tag says $220! The dealer has marked the lamp up from market value in order to stay in business. So they sell the lamp back to you for $220.
In this example, the antique dealer’s buy rate was $180, and their sell rate was $220. The average of the buy rate and the sell rate is the market rate, which was $200. However, it is important to note that no trade actually occurred for this amount. With the lamp, as with currency, nobody trades at the mid market rate. Anyone who did would lose money.
Of course, different dealers might have charged different amounts. One might have offered to buy the lamp for $150, another for $190. But in no case can dealers buy at more than the market rate, or sell at less than the market rate, without going out of business in the long run.
The exact same thing is true when dealing with currencies. All currencies have a market rate, and different dealers will set different buy and sell rates depending on the money they want to make. When converting from one currency to another, you are always buying one currency and selling another, so you will always get the buy rate from one currency and the sell rate from the other.
The further the buy and sell rates are from the market rate, the more the transaction costs you. Some dealers are very far from the market rate, whereas we at XEtrade strive to save you money by making our rates as close as possible.
In summary, buy and sell rates are prices set by currency dealers to stay in business.
When doing a conversion, our free currency information services always list the mid-market rate, since we can not know if you will be buying or selling a given currency. The mid-market rate is the most generally useful number, since it serves as a reliable, indicative value for the currency that is not weighted towards buying or selling.
