Currency conversion fee
Family IV · Costs
Not to be confused with swap fee, forex currency trading, deposit fee.
Currency conversion fee is a cost levied when funds must be exchanged between two currencies to complete a transaction. It is not a commission on the trade itself but a charge for the currency exchange embedded in the settlement process. The fee is typically expressed as a percentage of the converted amount or as a markup added to the mid-market exchange rate.
How the fee is applied
Brokers and payment providers apply currency conversion fees in one of two ways. The first is an explicit percentage charge on the converted amount, shown as a separate line item. The second is an implicit markup: the provider uses an exchange rate that is worse than the interbank rate, and the difference is the fee. The size of the fee varies by provider, by the currency pair, and by the transaction type (trade settlement, deposit, or withdrawal). Some providers waive the fee above a certain volume or for major currency pairs.
Worked example
An account is denominated in euros. A trader buys US shares worth 10,000 USD. The provider converts euros to dollars at a rate that includes a 0.5% markup.
Where it appears
Currency conversion fees can arise on deposits made in a currency other than the account base currency, on withdrawals in a foreign currency, and on trades in instruments denominated in another currency. The fee is separate from any swap fee charged for holding a leveraged position overnight, and it is not the same as the spread or commission on a forex currency trading position, although both may be present in the same transaction.
Often confused with
- swap fee
- A swap fee is an overnight financing charge for holding a leveraged position, not a charge for exchanging currencies; the visible sign is that a swap fee appears on positions held past the daily rollover time, while a currency conversion fee appears whenever a non-base currency is bought or sold.
- forex currency trading
- Forex currency trading is the activity of speculating on exchange-rate movements, not a cost; the visible sign is that forex currency trading generates profit or loss from price changes, while a currency conversion fee is a deduction from the account balance.
- deposit fee
- A deposit fee is charged for adding funds to an account regardless of currency, whereas a currency conversion fee is charged only when the deposited currency differs from the account base currency; the visible sign is that a deposit fee appears on every deposit under the provider's terms, while a currency conversion fee appears only on cross-currency deposits.