How to lock in the best mid-market rate for financial transactions

Isabelle Comber5 minutes
Business tips
How to lock in the best mid-market rate for financial transactions
In this article

As a business involved in international financial transactions, one of your top priorities should be getting the best foreign exchange (forex/FX) rates. This ensures you get your money’s worth while mitigating unpredictable market fluctuations.

Understanding the concept of mid-market forex rates, their significance, and how to secure the best rates for your transactions can have a positive effect on your bottom line. But how do you make sure you’re getting the best value when navigating foreign exchange in Australia?

What is a mid-market rate for foreign exchange?

The mid-market rate (sometimes called the interbank exchange rate) is the midpoint between the bid and sell prices of two currencies on the forex market at any given time. ‘Bid price’ refers to the biggest sum buyers would pay, while ‘ask price’ refers to the lowest price sellers will agree to.

How are mid-market foreign exchange rates calculated?

Mid-market rates are not static; they change continuously throughout the trading day. The rates are determined by vast networks of interbank traders globally who use sophisticated algorithms and real-time data to calculate them. Other fees or charges may apply, which correlate to the bank or card provider you use for your foreign currency exchange.

The formula for calculating the mid-market rate is:

Mid-market rate = (bid price + ask price) ÷ 2

What are the factors influencing mid-market rates?

Several factors can influence mid-market rates, including geopolitical events, economic reports, interest rates, and market sentiment. Central bank policies and unexpected political shifts can have significant, sudden impacts on these rates.

Why are mid-market rates important for international transactions?

Mid-market rates play a pivotal role in international financial transactions. They affect the cost of imports and exports, influence investment returns, and determine the actual value of transactions.

How do mid-market rates affect businesses?

For businesses, securing favourable forex rates has a direct impact on profits. It can mean lower costs for materials sourced from abroad, greater returns on international investments, and higher competitiveness in the global market.

Securing the best FX rates offers many advantages, from cost savings to increasing financial security and efficiency.

Businesses that take control of their foreign exchange with tools like Airwallex can reap huge benefits. Take Aussie wine connoisseurs Vinomofo, “There aren’t many initiatives we could implement to save our business around $100,000 annually without a huge amount of effort,” says CFO Keiran Donovan. “It’s a pretty easy win, to be honest, and something I’d encourage any business with foreign exchange exposure to look into.”

How do mid-market rates affect individuals?

By seeking out the best forex rate, individuals receive the best value for their transactions. This helps to maximise returns on foreign investments and ensures that travel or funds for other purposes grow in value.

Top strategies to secure the best mid-market rates

Given the fluctuating nature of mid-market rates, it is essential to deploy strategies to secure the most advantageous rates. As a business, you face multiple challenges in addressing risks associated with currency exchange, such as timing issues, costly fees, and market volatility. Consistency in securing favourable mid-market rates is key to long-term financial success. This involves the development and implementation of a comprehensive forex strateg

1. Monitoring and predicting rate movements

One strategy is to monitor mid-market rate movements closely. Identifying trends can help you predict when rates are at their most favourable, allowing you to time transactions effectively.

2. Leveraging market trends

Understanding market trends and how and when to leverage them to your benefit can significantly improve the chances of securing a good mid-market rate. This strategy involves extensive market research and the assessment of multiple influencing factors like supply and demand dynamics, economic indicators such as inflation rates, and trade agreements.

3. Advanced rate tracking tools

Technology has made foreign exchange management more accessible than ever, with several tools specialising in tracking and analysing forex data.

Sophisticated software and apps offer live mid-market rate updates and allow extensive monitoring and analysis. These tools also provide alerts for significant rate movements and enable users to set preferred rates.

4. Multi-currency accounts

Multi-currency accounts (also known as foreign currency accounts), such as the Airwallex Global Account, allow businesses to hold and manage funds in multiple currencies. This reduces the need for frequent and costly currency conversions, and gives businesses the opportunity to hedge against currency risk by diversifying their held funds across several currencies. Multi-currency accounts also give your international business the freedom to convert funds when the exchange rate is most favourable.  

5. Streamlined access to the mid-market rate

When evaluating rates, you might be asking yourself, which Australian bank has the best foreign exchange rate? Not all financial institutions give businesses and individuals access to the mid-market rate. Traditionally, banks and other financial institutions add markups and other hidden fees to their currency exchange rate. Airwallex gives businesses access to the mid-market rate, making currency exchange more cost-efficient.    

6. FX hedging tools

Hedging tools, such as Airwallex's LockFX feature, give users the ability to fix foreign exchange rates for a certain period of time, even if market rates fluctuate. These tools provide a level of protection against unfavourable rate swings, which is particularly useful for international business transactions, such as in travel booking processes or marketplace platforms.

Eager to access market-leading FX rates no matter the transaction size? Discover Airwallex’s full suite of FX and transfer tools.

Tips for effective currency exchange for businesses

Currency exchange can be fraught with risk, but with the right approach, you can smooth out the process and ensure the best possible rates for your business.

1. Understand foreign exchange costs

Awareness of the various costs involved in exchanging currency is crucial. This includes the spread (the margin providers make on top of the mid-market rates) and any additional fees.

2. Transaction timing

The timing of your transaction can significantly affect the final rate you receive. Political and economic stability, inflation, and trade have an impact on the value of currencies, so always aim to make transactions when the rate is favourable.

3. Avoid common foreign exchange pitfalls

Avoid pitfalls such as over-trading, chasing rates, and not accounting for all costs and fees. It's vital to approach forex transactions with patience and an analytical mindset.

Take control of FX with Airwallex

With an Airwallex Global Account, your business can collect, hold and send money in multiple currencies. That means you can avoid unnecessary currency conversions and hedge against foreign exchange risk. When you do want to exchange currencies, Airwallex can help you  access the mid-market rate. 

Sign up for an Airwallex Global Account to get started now.

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Isabelle Comber
Business Finance Writer

Izzy is a business finance writer for Airwallex. She specialises in thought leadership that empowers businesses to grow without boundaries.

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