Key Takeaways
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- Foreign exchange fees, or FX fees, are the costs that you pay to your bank or trading platform whenever it performs a currency conversion.
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- This includes visible costs like currency spreads and percentage fees.
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- It also includes hidden markups, correspondent fees, swap fees, and indirect costs that are silently passed onto end users.
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- Tiered, transparent FX platforms like Payset can help you save money.
What are foreign exchange fees? They’re simply the costs that you pay when you convert one foreign currency to another through a bank or FX trading platform.
There’s no single type of FX fee: this includes costs that are visible to the end user, such as currency spreads, swap fees, and itemized fees, plus invisible costs like hidden markups that are built into the bank’s exchange rate.
Foreign exchange fees exist because banks and providers need to cover risks, manage liquidity, and generate revenue for every trade they perform.
Even when banks offer seemingly feeless FX services, part of the cost is generally passed on to the user in some way. That’s why it’s important to seek out maximally transparent fee structures, not just “zero-fee” services.
In this article, we’ll look at different types of fees, how they’re applied, and how you can find alternative services with transparent rates.
Types of FX Fees
Currency Spreads
Currency spreads are the difference between the price at which a currency is bought and sold by the bank, also known as the bid/ask spread.
Banks and FX exchanges put the cost of these spreads on end users to generate revenue. This is also one of several ways in which banks protect themselves from risk and loss resulting from fluctuations in foreign currency exchange rates.
That means that you’ll receive a conversion rate that’s inferior to the mid-market rate (aka the interbank rate) that you see on market trackers.
How it affects your bottom line: Basic spreads are usually visible, but they don’t always capture the cost of the full trade or transaction. Always consider the full cost of the FX trade, not just the currency spread.
Hidden Markups on the Exchange Rate
Banks often charge embedded or “hidden” markup fees that put even more of the transaction cost on the customer beyond basic fees.
Usually, this is done by providing customers with an exchange rate that favors the bank, costing you a significant fraction of your transfer.
Banks rely on hidden markups because they’re a flexible way to drive revenue and profits. This can allow banks to advertise zero fees while still collecting revenue, even when customers take time to read the fine print.
In many jurisdictions, banks don’t even need to standardize or list these as individual fees — they only need to disclose the full exchange rate.
How it affects your bottom line:
Hidden markups mean you’ll send more and receive less than the mid-market rate might suggest.
But markups don’t need to be hidden: choosing a transparent or tiered FX platform can provide full insight into markup at trading time.
Correspondent Fees
During FX trades, banks and exchanges often need to work with foreign financial institutions through a correspondent bank or intermediary bank.
Correspondent fees aren’t usually charged to end users. They’re charged to the sending bank in order to cover the cost of access to foreign financial networks, currency settlement, currency conversions, and other related expenses.
More broadly, reliance on traditional systems can increase costs on a per-transaction level, add liquidity requirements, and reduce transaction throughput. This motivates banks to pass greater costs onto their users.
As an end user, you won’t know the details of the costs that banks face from working with one another, and this may not even be measurable on a per-user level — but it can add to the invisible costs that you pay on FX transfers.
How it affects your bottom line:
Correspondent fees and similar costs are especially hard to work around because they’re obscured to the public.
One strategy is to choose an alternative FX platform that has reduced its need for intermediaries and the broader financial system, especially one that has sufficient foreign currencies on hand to perform trades.
Swap Fees
Swap fees are overnight fees that are applied when your FX position is held past a market cutoff time, usually the end of the business day.
These rates apply because the position lasts overnight, meaning that you’re effectively borrowing one currency to buy another.
How it affects your bottom line:
If you’re performing same-day trades, these fees won’t apply — but it’s important to stay aware if your service offers overnight positions, which can quickly build up extra costs.
Other Fees
This isn’t a complete list of costs: banks and FX services may also charge commission fees and per-trade fees that add costs to every exchange.
Even when you’re not actively trading, the bank might impose other fees. Maintaining an account can involve monthly fees, withdrawal fees, wire fees, and other service fees that eat into your business’s finances.
Choosing a platform that’s competitive on all FX and service fees is critical to ensuring you can afford to store and move your money.
How Fees and Costs Impact Your Business
These costs can impact your business’s profitability in a variety of ways.
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- Fees that add up fast: Small fees don’t stay small. For example, a business that has $1 million in FX volume pays $25,000 after 2.5% fees.
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- Reduced revenue from inbound transfers: Whenever you pay FX fees on inbound payments, you may receive less than expected based on mid-market exchange rates, cutting into your already narrow profits.
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- Higher costs on outgoing transfers: Similarly, if you pay FX fees on outbound payments, you’ll need to send more money than expected.
- Higher costs on outgoing transfers: Similarly, if you pay FX fees on outbound payments, you’ll need to send more money than expected.
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- Leakage from hidden fees: Invisible correspondent fees, hidden markups, and legacy banking expenses mean you pay even more on each transaction, and you may not ever know the full cost of trading.
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- Price volatility: FX rates fluctuate, and the lack of transparency into how banks set price spreads and conversion rates prevents effective planning.
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- Overhead and operational drag: Managing complex FX fees and foreign exchange operations can require significant manual oversight, adding unnecessary costs, labor, and time to your business operations.
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- Cash flow gaps: FX rates that don’t deliver the expected amount of funds mean that you might not have all of the cash you need on hand, potentially forcing your business into costly loans or late payments.
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- Losing out to the competition: Rival businesses that are able to secure superior FX rates may be able to outcompete you on price by covering their lower revenue with money saved on FX transfers and exchange.
How Payset’s Tiered FX Cuts Your Costs
Payset handles tiered FX pricing in the simplest way possible.
We’ll automatically place you in an FX rate tier based on your rolling 90-day trading volume. You’ll begin at the starter tier, then you’ll be upgraded after meeting the next tier’s requirements. You’ll begin at the starter tier, then you’ll be upgraded after meeting the next tier’s requirements.
Once you enter a higher tier, your placement in that tier is guaranteed for 30 days, even if your activity falls below the requirements. And if your trading volume increases, you can still enter higher tiers when you’re locked into that tier.
This way, you get transparent FX pricing with rates that fit your needs on a sliding scale, and there’s never any need to negotiate or change your plan.
In short, all you need to know is this: the more you trade, the better FX rates you’ll receive.
Full FX Rate Transparency
It’s not just tiered FX services that make Payset great. We also provide fully transparent rates so that you always see real-time rates. This is updated every ten seconds, with details of the interbank rate and Payset’s own margin.
Together, these features are meant to ensure Payset users enjoy affordable and predictable FX costs that they can model and plan for.
That’s the key: you’ll always see the full price of your trade with Payset.
Ready to Sign Up?
With Payset, you’ll get more than just an FX platform. You’ll also get access to all of our other features, including a multi-currency IBAN account for storing and transferring money, tools for team management and bulk payments, and more.
With support for holding and exchanging 35 currencies, and sending and receiving funds in over 180 countries, we can help your business grow globally.
Register today with no sign-up fees or talk to our support team for more information.
References
https://www.investopedia.com/ask/answers/06/forexpercentagespread.asp
https://www.kantox.com/blog/hidden-fx-charges-you-need-to-know-about
https://kitrum.com/blog/legacy-banking-systems
https://www.investing.com/brokers/guides/forex/forex-fees-what-every-trader-should-know
FAQ
What’s the difference between an FX spread and a markup?
The spread is the gap between a currency’s buy and sell price, driven by market liquidity. The markup is an extra fee a provider adds on top of the spread to make a profit, pushing your rate further from the mid-market (interbank) rate. Together they make up much of what you pay on a trade.
What is the mid-market (interbank) rate?
It’s the midpoint between a currency’s buy and sell prices — the rate you see on Google. Retail users and small businesses often don’t get this exact rate, because providers add a spread or markup on top to cover their costs. Payset shows this rate alongside its own margin before you trade.
How can I tell if an FX provider is charging hidden fees?
Be cautious with “zero-fee” offers, as some providers bury costs inside a marked-up exchange rate instead of a visible fee. The clearest sign of transparency is whether you can see the mid-market rate and the provider’s own margin before you confirm a trade.
Does Payset charge swap or overnight fees?
Swap fees apply when an FX position is held overnight past a market cutoff. Because Payset’s exchange is based on instant, real-time conversions rather than holding open positions for you, this type of overnight fee doesn’t apply to its trades. Standard transfer and account fees are always shown upfront.
Do FX costs go down as my business trades more?
Yes, with a tiered provider. Payset places you in an FX rate tier based on your trading volume over a rolling 90-day window, and gives better rates as that volume rises. Once you reach a higher tier, the rate is locked in for 30 days even if your volume dips, so a slow month doesn’t immediately cost you the discount.
