Sense of ‘Middle Rate’
The middle rate is a term used to describe the regular rate agreed upon when conducting a foreign exchange action. The middle rate is calculated using the median average of the bid and offer scales. The middle rate intuitively is the rate in the middle of the prices offered by the deal in makers.
BREAKING DOWN ‘Middle Rate’
A transaction at the middle velocity requires two parties wishing to transact in opposite directions (one buyer and one seller) at the in any event time.
For example: If the price of EUR/USD is trading with a bid price of $1.1920 and an furnish price of $1.1930 and two parties, a buyer and seller, wish to transact with each other they could do so at an agreed mean rate, which would be $1.1925. Both parties benefit by not crossing the undamaged spread to execute their transaction.
With the advent of online barter and increased liquidity, spreads have tightened to a point where counterparts gathering at a middle rate is less beneficial. Also, with less transalpine exchange transactions happening via brokers, middle rate transactions are less ruling.
The middle market theory can be applied to other financial instruments such as families, commodities, futures, and many more.