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What do the rates of exchange I see online actually mean?

Google 'Pound to Euro exchange rate' now and click on the first search result to appear.

We're going to use that search result to frame our explanation of what you see when you look online for an exchange rate and it will also frame our explanation as to how what you see isn't necessarily what you're going to get.


The first thing to say is that the website you're looking at is not faceless. It has not come top in your search by coincidence.

If it is the same one that appeared at the top of our search, it is in fact an online currency transfer business.

Like us, this company assists people who want to exchange currency between bank accounts; as you can imagine, they pay a lot to be top of your search.

What you will also see just below their representation of 'the rate' is a little disclaimer stating:

"All figures are based on live mid-market rates. These rates are not available to consumer clients."

This begs the questions:

'what are 'live mid-market rates?'


'what rates are available to consumer clients?'

If you are showing me a rate of exchange, why is it not available to me as a 'consumer client' and what is?


Forgive us if we're teaching you something you already know. If we are then great, but, this post might not be for you.

For those unfamiliar with the jargon being used, let us set the scene with regards to currencies, 'markets' and the exchange of money around the world:

Globally the sales and purchase of businesses, currencies, securities and all manner of other things private capital can buy and sell, takes place within a sort of virtual 'network' which is commonly referred to as a 'market'.

Imagine a real 'market'. Like a farmers market, except rather than twee little candy cain awnings shielding cheeses, bread and fresh veg, the vendors in these markets are selling a euro, or debt in a company, or a share in a listed business, or a house.

Amazon is considered an online 'market place' and certain big financial institutions might even be considered the financial equivalent of a super market as they have a huge variety of products, financial instruments and so on under one roof.

We appreciate that this may seem an overly simplistic analogy, but, a 'market' in the context of financial services really can be understood in this way as the old traditional markets, with a buyer, a seller and potential for negotiation based on volume, demand and payment in cash (for instance).

At the moment the UK runs on a free-market economic model. We aren't economists, so we won't go into the alternatives, but, in a nut-shell this means that the state, other than through regulation of certain markets, is not directly intervening in the prices set by the vendors within these markets.

Prices are, for the most part, determined by the market and what it's participants are willing to pay.

So, when you hear someone refer to the 'currency markets' you could and should quite understandably visualise a series of market stalls all over the world selling euros, dollars, sterling, yen.

Some stalls will only sell the wears of the territory they operate in.

Some very rich market participants can and do stockpile the currencies of other stall holders.

All of this happens above our heads down here on the high-street, but, it all has an affect on what rates of exchange filter down to you and I.


Generally speaking the main purveyors of currencies in this virtual market place are banks.

We could go in to more detail, but, let's say that banks are the sellers in this market place and everyone else is the buyer; if we accept that then the premise is easier to extrapolate.

So, a big market place with many stall holders all of which are banks.

How then do you and I or anyone else 'looking-in' know what a country's currency is worth relative to another currency elsewhere in the market?

With so many different vendors and purveyors of currencies, how do we know what the actual rate of exchange is given that all these banks might be asking you to pay a different price for the currency they're selling...?