What Am I Paying in FX Fees, and Is It Competitive?
Most companies know the exchange rate they achieved. Far fewer know what that rate actually cost them.
In foreign exchange, the cost is often built into the rate rather than shown as a separate fee. That means a trade confirmation may show the currency pair, trade amount, value date and final rate, but not clearly show the monetary cost included within that rate.
This guide explains how FX fees work, why they can be difficult to see, and how to check whether a recent FX trade looks fair or competitive.
Why FX fees are not always obvious
FX costs can be difficult to identify because they are not always charged in the same way as other business costs. A software subscription has a monthly fee. A professional adviser sends an invoice. A bank loan has an interest rate.
FX is different. The cost is often embedded in the conversion rate. Unless the spread is measured against a relevant market rate or benchmark, the cost may not be obvious from the trade confirmation alone.
This makes it hard for finance teams to answer a simple question: was this FX trade priced fairly?
What are hidden FX fees?
Hidden FX fees are costs included within the exchange rate offered by a bank, broker or payment provider. There may be a market rate available at the time of the trade, and a different rate given to the client. The difference between those two rates is commonly referred to as the spread or margin.
The client may not receive an invoice for this cost. It is usually reflected in the exchange rate itself.
What information do you need?
To check the cost of a recent FX trade, you usually need: currency pair, trade direction, amount bought or sold, client exchange rate, trade date and time, value date, and product type such as spot or forward.
How the cost is calculated
Compare the client rate with a relevant market or benchmark rate from around the time of the trade. Calculate the difference between the two rates — this is the spread, often expressed in pips or basis points. The spread can then be translated into a monetary amount based on the trade size.
Is one trade enough?
One trade does not prove everything about an FX relationship. However, one trade can be enough to show whether FX pricing is worth reviewing. If the cost appears materially above available pricing levels, it may justify a wider review.
How Alto's FX Cost Checker helps
Alto's free FX Cost Checker is designed to make this process easier. Enter the details of a recent FX trade, and the tool analyses the cost built into the rate. It shows the spread, the monetary cost implied by the comparison, and how the pricing compares with levels available through selected FX providers.
Analyse a Trade — Use Alto's free FX Cost Checker to analyse a recent FX trade in around 30 seconds.