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FX101: What is the Middle Rate?

In Business and Currency by Continental StaffLeave a Comment

Middle rate, mid-rate, midpoint rate. These words are thrown around a lot when talking about the foreign exchange market. But what is the middle rate and how does it impact the prices when you buy or sell currency?

What are Buy and Sell Rates?

currency exchange japan buy sell people

Before we get into the middle rate, we need to understand ‘buy’ and ‘sell’ rates. Also known as ‘bid’ or ‘ask’ rates respectively, these numbers are set by the currency brokers or dealers. The ‘buy (bid)’ rate is the rate in which the broker will buy the currency in question while the ‘sell (ask)’ rate is how much the broker will sell the currency to you, the customer.

Lets look at an example. If the ‘buy’ rate for USD/CAD is 1.2855, you can sell 1 US dollar to the broker and get 1.2855 Canadian back. If the ‘sell’ rate for USD/CAD is 1.2875, you can buy 1 US dollar for 1.2875 Canadian.

Note: the buy rate is always going to be lower than the sell rate

The ‘buy’ and ‘sell’ rates are often written together with ‘buy’ first and ‘sell’ second. In the above example, it would be written as 1.2855/75.

What is the Middle Rate?

us dollars pencil calculator exchange rate

Now that we’ve got buy and sell rates down, let’s move on to the middle rate. It’s actually quite simple. To find the middle rate, you just have to take the average of the buy and sell rate.

Here’s how to find the middle rate using the above example:

{Buy rate (1.2855) + Sell rate (1.2875)} / 2 = Middle rate (1.2865)

Because the middle rate is an average of the two rates used by foreign exchange brokers (buy and sell), it serves as a rough approximation of what rate to expect when exchanging currency. Of course, if you’re buying currency you can expect a slightly better rate and if you’re selling you’ll get a slightly lower rate.

Note: when you see an exchange rate on google, yahoo, or anywhere else in the news – it’s the middle rate.

We hope this short explanation helped you out because understanding the middle rate is paramount to becoming an FXpert! So next time you hear someone talking about the middle rate, mid-rate, or midpoint rate – you’ll know exactly what they mean.

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