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All about spot rates and retail rates

The lowdown on the difference between the spot rate and the retail rate when exchanging money.

Currency exchange can be confusing, there’s no doubt about it! With all those weird terms and tricky exchange rates, it can be hard to make sense of it all. But as the world’s largest retail provider, we’re here to help.

Have you even gone somewhere to change your vacation money and seen two exchange rates for the same currency? Or heard someone talking about a spot rate? Here’s a quick and simple breakdown of everything you need to know.

What is a spot rate?

In simple terms, the spot market is a public financial market where massive amounts of currency are traded. A foreign exchange spot transaction (sometimes known as an FX spot) is an agreement to buy one currency against selling another currency at a particular price on a particular date. The day decided upon is called the spot date and the exchange rate agreed is known as the spot exchange rate. Easy!

What is a retail rate?

The retail rate that you’ll see when you go to exchange your vacation money is a little bit different. In the retail currency exchange market, you’ll find a buying rate and a selling rate. FX providers such as us will buy a foreign currency at the buying rate and sell it on at the selling rate. The difference between the two rates is due to the cost to supply. There are a number of different operational costs to ensure that we’re getting your currency to you when you need it, and therefore we need to adjust the cost of currency in order to cover this. In just the same way that it costs coffee shops to provide you with your morning flat white and Barney’s to get you the latest sweater, there are huge costs associated with supplying a product or service.

Why can’t I buy at the spot rate?

As a tourist, you won’t be able to buy your currency at the spot rate. Why not? Think of it as similar to the difference between wholesale prices and the retail prices that you get in stores. Foreign exchange dealers are buying and selling trillions of dollars (or whichever currency), compared to the likely small amounts that you’re exchanging for your vacation. In other words, the bigger the spend, the better the deal.

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