Key Takeaways
- You should expect to pay some costs for conversions between USD and EUR.
- Exchange rates and service charges determine how much you pay, while the broader banking and economic landscape may have a less direct influence.
- You can save money by planning your trades and finding the best services on offer.
- Payset offers transparent, affordable rates on all FX trades
If your business regularly converts US dollars to euros, you might be sustaining unnecessary blows to your bottom line due to fluctuating FX rates, hidden fees, and rate markups.
That’s why it’s important to think about precisely what affects your FX rates, from service fees and the USD to EUR exchange rate to broader payment frictions. Fortunately, you can overcome many costs by choosing an affordable and effective service provider.
Payset specializes in transparent and affordable FX pricing and facilitating low-friction USD to EUR business payments, so if your company works between these two currencies, Payset could wind up saving you a lot of money.
Let’s take a step back, though. Here’s what you should know about FX rates, and how you can avoid higher fees across the board.
What Is a Foreign Exchange Rate (USD to EUR)?
The foreign exchange (FX) rate represents the amount of one currency that you’ll receive for another during a trade, such as a currency conversion from USD to EUR.
- If the USD to EUR exchange rate is 1 USD = 0.86 EUR, you’ll receive 0.86 EUR for every US dollar (before fees).
- The corresponding reverse exchange rate would be about 1 EUR = 1.16 USD.
The base rate you’ll see on Google or on any other currency conversion ticker is typically called the mid-market rate (or interbank rate).
The important thing to know is that you may not get the mid-market rate posted on Google and other websites. This rate is the midpoint between buy and sell prices, and it’s not always offered to retail users and small businesses.
Instead, you’ll typically get a rate set by your bank or FX provider that includes a spread, markup, or service costs on top of the interbank rate.
This is where, if you know how things work, you can save significant money in this area.
Key Factors That Affect Your FX Rate
FX Markup, Spread
FX service pricing is partly determined by broad conversion rate factors, including market conditions and operational costs. The base fees to understand are the spread and markup.
The Spread is the standard difference between the buy (ask) price and the sell (bid) price of a currency pair. It will fluctuate based on market liquidity and is charged by the broker or bank.
The markup is an additional fee on top of the spread charged by brokers to secure a profit, making the cost of your trade higher than the interbank (mid-market) rate.
Tiered FX Rates
FX providers may also adjust rates based on individual usage, with higher transaction volumes and larger trades qualifying for lower FX markups.
(Note that if you are a high-volume trader and you aren’t getting a lower markup, you’re basically paying the tourist exchange rate and losing money.)
At Payset, qualifying businesses get tiered FX pricing that’s easy to understand:
As soon as you reach a higher tier in trading volume, based on your cumulative volumes over the past 90 days, you lock in a lower FX rate for a full 30 days.
We’ve designed this so you get our best rates for as long as possible and avoid losing your discount just because your volumes drop during a slow month.
We lock your rate for a full 30 days (rather than cutting it at the end of the month) as soon as you enter a new tier and measure your average volume across 90 days. In other words, we protect you from falling out of your discount tier during periods when your trading activity naturally drops.
Simply put, trading more with Payset gets you better rates that are locked in for longer.
Market Supply and Demand
Although FX providers set their own rates, changes in the mid-market rate are beyond the control of individual providers and their customers.
So, what affects exchange rates? USD-EUR fluctuations are constantly happening due to supply and demand from traders, investors, and other market participants. Higher demand for either EUR or USD will result in that currency being more expensive for those who hold the other.
Timing of the Transaction
FX rates change throughout the day and over longer periods of time, meaning that the timing of your trade can dramatically affect the rate you receive.
Hypothetically, if fluctuations in a major currency pair like EUR/USD reach 5%, your business could see a 50 EUR difference on every 1,000 EUR that it exchanges — potentially leading to significant business savings if the exchange rate moves in your favor.
However, it’s difficult to time markets reliably. Poor timing can lead to missed opportunities, costing you more and leaving you with no choice but to pay higher rates.
As a side note, a multicurrency account can help with this issue, since if you manage multiple currencies from a single dashboard, you’re better able to take advantage of temporal shifts in FX rates.
Payment Method and Routing
Routing and payment methods also affect FX trading costs.
On the service provider’s side, some FX platforms have stronger liquidity access and more direct trade execution routes. Though these details aren’t always clear to the end user, FX platforms that rely less on intermediaries may pass on lower costs to the client.
Users may also have a choice as to how to move funds on and off the FX platform before and after trading. Though this is a transfer cost rather than a trading cost, international SWIFT transfers, for instance, typically have higher fees than local payment rails such as SEPA in the EU.
Economic and Political Events
Each currency has unique characteristics. Demand for USD generally increases when investors seek a safe haven or commodities priced in USD, while demand for EUR tends to increase when the European economy is strong and shows high levels of exports and foreign investment.
Monetary policy also plays a role. As USD or EUR interest rates rise, investors may seek higher rates of return on assets denominated in those currencies, driving demand for each currency.
Finally, political stability may cause investors to buy or sell EUR and USD speculatively, pointing to investor confidence rather than direct effects from recent events.
Hidden Costs When Sending USD to EUR
It isn’t always easy to see the full cost of sending USD to EUR. This means that US businesses should consider hidden FX fees, which might include:
- FX markup: Most trading platforms add a markup to the mid-market rate. Some don’t show this markup transparently, making it difficult to compare true service costs.
- Hidden fees: Similarly, some FX platforms that offer “no fees” embed costs in their rates, and this may actually cost more than platforms with transparent pricing.
- Exchange rate spread: The difference between the buy and sell prices (the spread) can add costs if you repeatedly convert funds between USD and EUR.
- Transfer fees: You’ll typically need to pay a fee to transfer funds on and off your trading platform. This is not part of the FX trade itself, but it can add extra costs.
- Intermediary bank fees: FX trading platforms may rely on various third parties in order to carry out trades, resulting in additional costs that are passed on to the customer.
- Differences from the mid-market rate: The mid-market rate (or interbank rate) represents the midpoint between buy and sell prices. FX trading platforms may provide a less favorable rate to retail users and small businesses to cover costs.
How Businesses Can Optimize FX Rates
It’s possible to optimize and reduce FX costs by following several strategies. Here are a few ways to get the best FX rates for businesses:
- Use providers with transparent pricing: Clear pricing can help you compare providers and plan your trading activities to get the best rates possible.
- Avoid unnecessary currency conversions: If you receive EUR or USD, consider holding that currency and looking for ways to spend or save it without the need to trade it.
- Seek out tiered FX pricing: Many FX trading platforms, including Payset, provide tiered pricing and better rates once you meet trading volume requirements.
- Market timing: Though it’s not always a reliable strategy, waiting until exchange rates are favorable before trading may help you save money.
- Use multi-currency accounts: Obtaining a multi-currency account from a payments provider like Payset can help with all of these strategies — allowing you to convert currencies as needed, avoid unnecessary trades, pay and get paid in the preferred currency, or hold your funds until you’re ready to spend.
The bottom line: transparent FX trading platforms, especially those with tiered pricing that adjusts to your needs, can help you save on trades and international payment fees.
How Payset Can Help
At Payset, we provide everything you need to trade and transact in a wide selection of global currencies, including EUR, USD, and dozens of others.
We help users send, receive, and exchange up to 38 currencies across 180+ countries with our multi-currency accounts, and make services available in 70+ countries. Plus, users can enjoy tiered rates and transparent pricing in our built-in FX platform.
It’s free to sign up for Payset, and we’re waiving monthly fees for a limited time — see this page for current offers. It’s a better time than ever to get started.
FAQ/Common Questions
Why is the FX rate I get different from Google’s?
Google displays the mid-market rate, which reflects the midpoint between the currency’s buy and sell prices. This is also known as the interbank rate. Most FX trading platforms offer different rates that include markups in order to cover the costs of the trade.
What is an FX markup?
FX markups are added to the exchange rate to cover service costs. Because the markup is percentage-based, the cost to the user is roughly proportional to the value of the trade.
What affects the USD to EUR exchange rate?
Several factors affect the USD-EUR exchange rate today, including market fluctuations, supply and demand from investors, and economic and political events.
How can businesses reduce FX costs?
Your business can reduce costs by looking for transparent rates and tiered pricing, and by planning your trading activities. If you want to find out how to get the best exchange rate, it’s important to compare different FX providers as well as each provider’s selection of offers.
Do FX rates improve with higher transaction volumes?
Many services provide better FX rates to users with higher transaction volumes. At Payset, our tiered FX model offers better rates the more you trade — see the details here.
