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What is spread in the forex market and how do you calculate it?

When carrying out international transactions, such as buying products from abroad or sending money to another country, it is essential to understand the various fees that may be applied. An important concept in this context is the forex spread, which can significantly influence the costs of these operations.

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What is the forex spread?

It is the difference between the cost of acquiring a foreign currency by a financial institution and the final price charged to the client. In short, this difference represents the bank or broker’s profit on foreign exchange transactions. For example, if a bank buys dollars at a rate of R$4.60 and sells them at R$4.80, the exchange spread is R$0.20 per dollar.

Charging a forex allows financial institutions to cover their operating costs and the risks associated with international transactions. Factors such as market volatility and the relationship between currency supply and demand influence the value of the spread. In addition, banks need to include a profit margin to maintain the economic viability of their foreign exchange operations.

When is the forex spread charged?

It is charged in various situations, including international purchases, money transfers abroad, receiving remittances and currency conversions for travel. This fee is charged whenever foreign currency is purchased.

To calculate the exchange spread, the official exchange rate of the currency is subtracted from the price charged by the financial institution. In the example cited above, the spread of R$ 0.20 represents the additional cost to the customer and the institution’s profit.

Cheaper international money transfers

The forex spread is an essential component in international transactions, directly impacting the costs of operations such as purchases, transfers and foreign exchange for travel. By understanding and calculating this spread, you can plan better financially and choose the financial institutions that offer the best conditions.

Here at Pryor Global, we help companies carry out foreign exchange transactions safely, efficiently and economically. Your company can buy, sell and make international transfers in more than 120 different currencies, such as dollars and euros, as well as make payments to suppliers abroad or receive amounts in foreign currencies protected from exchange rate fluctuations.

Contact us and find out more about the benefits of using our service.

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