How to Calculate the Cost of an FX Trade
To calculate the cost of an FX trade, compare the rate received with a relevant market or benchmark rate from around the time of the trade. The difference between those rates can then be translated into a monetary cost.
Step 1: Find the trade details
Start with the trade confirmation or payment record. You need the currency pair, trade direction, amount, client rate, trade date, trade time and value date.
Step 2: Compare against a relevant rate
Compare the client rate with a relevant market or benchmark rate. For spot trades, this usually means looking at the market rate around the time the trade was executed. For forward trades, the comparison needs to take account of the forward value date.
Step 3: Calculate the spread
The spread is the difference between the client rate and the comparison rate. This difference can be shown in pips, basis points or percentage terms.
Step 4: Convert the spread into money
Once the spread is known, it can be translated into a monetary amount based on the trade size. This helps finance teams see the cost in pounds, euros, dollars or another relevant currency rather than just as a rate difference.
Why the monetary number matters
Rate differences can look small. Monetary cost is easier to judge. A finance team may not know whether a spread of 40 pips sounds material. But if that spread represents several thousand pounds of cost, the decision becomes clearer.
Analyse a Trade — Use Alto's free FX Cost Checker to analyse a recent FX trade in around 30 seconds.