You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
FX Conversion Rates
- Thread starter SkyRider
- Start date
Why do FX conversion rates vary so much from bank to bank? Is there no regulated market similar to the TSX? Or, is it strictly over the counter and individual banks can charge whatever rate they want?
Pretty much. There is a spot rate that you see on TV and as outsiders you will never have access to the rate. What you will see is a rate based on a spread (range between the bid and ask) that wil vary from bank to bank based on that day's spot rate. I personally prefer going to fx exchange locations in the malls. They generally offer better rates than banks who take wide spreads.
thumper18474
Well-known member
I have an app on my phone that gives me real time rates..on 10 currencies
Banks fuck you royally on converting...but then again so the the ICE..outlets...but its usually a better rate than the banks
Banks fuck you royally on converting...but then again so the the ICE..outlets...but its usually a better rate than the banks
Pretty much. There is a spot rate that you see on TV and as outsiders you will never have access to the rate. What you will see is a rate based on a spread (range between the bid and ask) that wil vary from bank to bank based on that day's spot rate. I personally prefer going to fx exchange locations in the malls. They generally offer better rates than banks who take wide spreads.
You can buy at close to spot using a discount brokerage account and Norbert's gambit. Purchase shares in an interlisted stock in the currency you want to change, then sell the stock in the currency you wants to acquire.
Thanks guys. One more question. The regulator fairly recently introduced some greater disclosure and transparency rules. For example, brokers now have to report the commission they make on the buy or sale of a bond.
Question: Is there any disclosure or transparency rule that requires the bank to disclose the "spread" they make on an FX transaction?
Question: Is there any disclosure or transparency rule that requires the bank to disclose the "spread" they make on an FX transaction?
Thanks guys. One more question. The regulator fairly recently introduced some greater disclosure and transparency rules. For example, brokers now have to report the commission they make on the buy or sale of a bond.
Question: Is there any disclosure or transparency rule that requires the bank to disclose the "spread" they make on an FX transaction?
A lot of the new rules of transparency (known as CRM2) don't even apply to banks, only brokerages. Commission on any trade (currency or otherwise) has always needed to be disclosed at the broker level. The spread banks take never has had to be disclosed and I doubt never will. Their lobbying powers are too big. But it's not difficult to figure out. If the spot rate for today is 1.25 and where you can sell to the bank is 1.20 and where you buy is 1.30 their spread is 5 points on each side for a 10 point bid/ask spread. But the tellers won't tell you. Mostly because they themselves probably don't understand it themselves. They just do what they're told.
Is the spot rate the bank's actual cost of the currency? Or, is it some government administrative rate like the bank rate that bears no relation to the actual cost of borrowed money to the bank?If the spot rate for today is 1.25 and where you can sell to the bank is 1.20 and where you buy is 1.30 their spread is 5 points on each side for a 10 point bid/ask spread.
Query: Why do I feel I am getting FX raped each time I buy or sell USD"s?
Is the spot rate the bank's actual cost of the currency? Or, is it some government administrative rate like the bank rate that bears no relation to the actual cost of borrowed money to the bank?
Query: Why do I feel I am getting FX raped each time I buy or sell USD"s?
Can anyone really determine what the "cost" to the bank is? A spread will always be a part of the equation. What is a justifiable spread? Who knows. It's one of many ways banks make money. They also incur costs. What is fair?
Financial institutions like banks are the "market makers". Which means they're not even paying spot. They're buying at the bid and selling at the ask and making money along the way.
Are you getting raped? I suppose the objective answer is yes, you're putting money in their pocket. The only way to improve your position is to look for the market maker that is willing to give you the tightest spread around the spot.
I had this discussion with a banker once and my eyes glazed over. He said the cost of money is what the bank pays the depositor plus the cost of premises plus the cost of his salary plus the cost of his secretary plus the cost of his computer and telephone and wireless and the IT support plus a portion of the CEO's salary and so on and so on.Can anyone really determine what the "cost" to the bank is?
Getting back to FX. I look at the Bank of Canada published FX rate and I look at what I pay the bank and there is a huge difference.
Most banks will charge you around 200 pips, or 2%, on the Bank of Canada's spot rate if you are a retail client making a small conversion.
If you go directly to an FX dealer you can get a better deal, especially on a larger sum. The more dollars you exchange on a frequent basis, the lower that figure can drop.
I work for a brokerage and we have clients paying very little (say, 10 pips, or 0.1%) because of their trade volume.
If you go directly to an FX dealer you can get a better deal, especially on a larger sum. The more dollars you exchange on a frequent basis, the lower that figure can drop.
I work for a brokerage and we have clients paying very little (say, 10 pips, or 0.1%) because of their trade volume.
When you go to a bank and get out $100 US and they charge you in effect 2.5% there may be some valid reasons for that I suppose. First, for your $100 transaction they will not be immediately hedging or doing the transaction on the other side, so there is some risk to them for accumulating small transactions before they do the covering transaction.
Having said that, for big Canadian banks with business in US and Canada this is only a problem if they don't have the right software to really manage it well. And that is a distinct possibility.
The big reason is that they can. 2 or 2.5% is the going cost for a small transaction in Canada... is it some sort of backroom agreement? Who knows.... but I do know it is hard to find a better deal.
Having said that, for big Canadian banks with business in US and Canada this is only a problem if they don't have the right software to really manage it well. And that is a distinct possibility.
The big reason is that they can. 2 or 2.5% is the going cost for a small transaction in Canada... is it some sort of backroom agreement? Who knows.... but I do know it is hard to find a better deal.
