How do Online Currency Converters Calculate the Rates of Exchange

Sep 11 • Currency Converter • 3258 Views • 2 Comments on How do Online Currency Converters Calculate the Rates of Exchange

Traditional banking institutions and money changers normally base their currency exchange calculations from the previous day’s closing prices.  This is the average price on which they base their calculations. Quite often too, they will build in their margin of profit into the rates which ultimately make their rates higher than the current spot forex rates.

On the other hand, online currency converters do not use the closing prices of the previous day as the basis for their rates. They get their data from real time market feeds and since the foreign currency market is a 24/7 market there is really no closing prices to talk about. Instead, these online converters get the average rate of exchange on a 24 hour period from the Australian market opening to New York closing.

On weekends where mostly only Middle Eastern banks are open, rates do not usually fluctuate much. The different foreign currency converter use different rates which they term as market rates. They are based on averages from different trading platforms, contributing financial institutions, and other leading market data vendors. The market rates may vary from one online currency converter to another.

How do you then reconcile banks and money changer rates with online currency converter rates?

The market rates produced by online converters are more reflective of the spot currency rates. And since banks and money changers usually build in their margin of profit into their rates, there will definitely be a difference. However, knowing the market rates provided by currency converters will give you an idea of how much money the banks or money changers are making out of each conversion. Knowing the current market rates will help you shop around for the best rates. You need not be at the mercy of banks and money changers. You are always at liberty to choose where to exchange your currency and get the best value for your money and certainly, online currency converters will be an essential tool to help you arrive at the decision.

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You use an online currency converter to give you an idea of how much to expect when you finally do exchange one currency with another through the banks or money changers. This way, you’d always know if you are getting a fair shake or if the money changer is pulling a fast one on you. You must however allow for some margin of differences as the banks or the money changers will normally have to factor in their margins into the rates. But this margin of difference should not be too far from the market rates you get from online currency converters.

One advantage of using online currency conversion programs is you need not do anymore mental calculations as is always the case when browse around online for products to purchase. It could be tough making such mental computations. Without online calculators it may be difficult to determine much less decide whether to purchase the product or not. But you need to also choose which currency calculators give the best rates as they also use different data providers.

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