The Markup Is the Real Cost
The mid-market rate is the midpoint between what buyers and sellers are quoting — the rate you see on Google or Reuters. Nobody offers it to consumers. Every provider takes a spread, and that spread is usually a far larger cost than any advertised fee.
| Provider | Typical markup | Cost on $2,000 |
|---|---|---|
| Airport exchange desk | 7–12% | $140–$240 |
| High street bank | 3–5% | $60–$100 |
| Credit card abroad | 1–3% (network + card fee) | $20–$60 |
| Online transfer service | 0.4–1% | $8–$20 |
"No commission" and "0% fee" signs almost always indicate a wide spread instead. A provider charging a flat $5 at the mid-market rate is cheaper than a fee-free one taking 4%, on every amount above $125.
Where Travellers Lose Money
- Dynamic currency conversion — the terminal offering to charge you in your home currency. Always decline. The merchant's bank sets the rate, and it is typically 3–7% worse than your card's.
- Airport kiosks — the worst rates available anywhere, priced for people with no alternative.
- Cash advances — withdrawing foreign cash on a credit card starts interest immediately at the cash advance rate, with no grace period.
- Buying currency in advance at home — usually worse than withdrawing from an ATM on arrival with a fee-free debit card.
Why Rates Move
Floating exchange rates respond to interest rate differentials, inflation, trade balances, and capital flows. The dominant short-term driver is interest rates: money moves toward the currency paying more, raising its value. This is why a central bank's rate decision moves the currency within seconds of the announcement.
Direct and Indirect Quotes
A rate of 0.92 EUR/USD means one dollar buys 0.92 euros. Inverted, one euro buys 1.087 dollars. Reversing a quote is dividing 1 by it — and confusing the direction is the single most common error in currency arithmetic. Always check which currency is being priced.
Frequently Asked Questions
When should I exchange money?
For a holiday, timing the market is not worth the effort — the spread you pay matters far more than a 1% move in the rate. For a large transfer, a forward contract locks a rate in advance and removes the risk.
Is it cheaper to use cash or card abroad?
Usually a card with no foreign transaction fee, at the network rate, which is close to mid-market. Carry some cash for places that do not take cards, but obtain it from a bank ATM rather than an exchange desk.
What is the spread?
The gap between the buy and sell prices a provider quotes. A quote of "buy 0.89 / sell 0.95" around a 0.92 mid-market rate is a 6.5% spread, split across both directions.