Series: Foreign currencies – the 10 most common mistakes
#01 Underestimating or ignoring the cost of FX transactions
What does an FX transaction really cost?
Every currency exchange incurs direct costs, in the form of:
- Bid/ask spreads (the difference between the bid and the ask rate)
and/or
- transaction-based costs
The size of this margin depends primarily on transaction volume and on the client-specific trading set-up. For institutional investors it ranges from less than one to multiple basis points.
What can you do?
- Professional treasury tools: for real-time rate monitoring
- Price comparisons: Compare rates across several banks and brokers
- Regular cost analyses: Measure and review the FX costs actually paid
- Staff training: Awareness and control of exchange rate and transaction costs
The key insight: «No transaction fee» does not automatically mean «no cost»
To keep foreign currency costs under control, look at the all-in exchange rate, including the bid/ask spread and any transaction-based costs.
- Measure costs
- Compare prices
- Identify potential
- Trade better
Coming next month:
02/10 Underestimating the impact of currency on performance…