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  • Finance

FX 101.

August 19, 2020

When moving abroad to study, your money has to move with you, and the rate at which you exchange your home currency for your new currency (the foreign exchange rate or FX rate) can have a big impact on your wallet. Whether you’re transferring money overseas to pay your tuition fees, accommodation or to help with day-to-day living expenses, understanding the foreign exchange markets, FX rates and fees can help you get more bang for your buck.

What is the foreign exchange market?

Did you know every time you exchange currency online or in a bank you are participating in the foreign exchange market? The foreign exchange market operates 24/7 and it’s estimated that $3 – $5 trillion dollars are traded every day. This makes the foreign exchange market the largest financial market in the world. For comparison, The New York Stock Exchange handles around $153 billion dollars per day (about 25 times less than the FX market).

What is the foreign exchange rate?

The FX rate represents the value of two currencies relative to each other.  It tells you how much one currency can be exchanged for the other. Because of currency demand and trades happening 24/7, FX rates change all the time. The rates are set and quoted by the foreign exchange market and can be impacted by inflation, unemployment rates, natural disasters and, as we have seen in recent times, global pandemics.

What are currency pairs?

Currencies are quoted and traded in pairs. The most commonly traded currency pair are the Euro (EUR) and the United States Dollar (USD).  If you are trading this currency pair you are simultaneously buying (or selling) USD while selling (or buying) EUR. Right now, 1 EUR will buy 1.18546 [MF2] USD, which would be shown as EUR/USD = 1.18546.

What is my currency code?

Each currency is assigned a unique three-letter currency code for easy identification. The currency code for the Australian dollar is AUD. Other common currency codes are USD (as mentioned above) for United States Dollars, EUR for Euros, CAD for Canadian Dollars, GBP for the Great Britain Pound (or Pound Sterling), and CNY for Chinese Yuan (or Renminbi) and BRL for Brazilian Real. For a full list of currency codes, click here.

Why do I never get as much in my money exchange as it says on Google?

When you search the internet for the FX rate, sites like google will show you the “mid-market” FX rate.  This is the rate at which big banks trade with each other.  Individuals cannot receive these rates.  Banks and other FX providers add a mark-up to the mid-market rate in order to cover their expenses, manage any FX risk they may have when they trade with you and ultimately to make money.  This mark-up is often called the “retail FX margin”.  You can see this retail FX margin whenever you go to the bank or a currency exchange bureau and see the big difference between where they will “buy” your currency and where they will “sell” your currency.  Not only will these banks and FX providers charge you a margin, they will often also charge you a handling fee, commission or transfer fee.

What are Cohort Go’s rates? 

You can view our rates in real time via our website here. Cohort Go exchanges millions of dollars every day and therefore receives a very low FX margin from its global network of local banks.  This enables Cohort Go to offer competitive rates that are much lower than what traditional banks typically offer. As mentioned, given individuals cannot exchange currency for the rates you can search on Google, it’s important to compare Cohort Go rates to retail bank rates. Because exchange rates fluctuate every second, it’s also important to compare rates at the same time. Lastly, it is also important to factor in any additional costs in fees or commission that may ultimately reduce the funds you receive.