Introduction to Currency Converters: Exchange Rates, Spreads, and Crypto Asset Conversion
A currency converter estimates equivalent amounts between two currencies or assets using an exchange rate. Learners should distinguish a reference mid-market rate from an actual execution rate and understand differences in the mechanisms and risks of traditional foreign exchange, centralized exchanges, decentralized exchanges, and stablecoin conversion.
How a Currency Converter Calculates
A currency converter generally appears as a website, app, or platform feature. After a user enters an amount and selects a target currency, the tool provides an equivalent value based on the current exchange rate. For example, EUR/USD at 1.08 means that 1 EUR can be exchanged for 1.08 USD. The displayed result is usually a reference value and may not equal the amount actually received.
Why Rates Keep Changing
A floating exchange rate is mainly determined by supply and demand in the foreign exchange market and is affected by interest-rate differences, inflation expectations, trade balances, central bank policy, and geopolitical events. The foreign exchange market operates continuously on business days, so quotes can change at any time. Some currencies are instead managed by governments or central banks to maintain a fixed or pegged exchange rate.
Why the Mid-Market Rate Is Not the Execution Rate
The mid-market rate is the midpoint between the bid and ask prices and is often used by online converters as an interbank reference rate. Banks and payment providers generally add a spread and may also charge a fixed fee, resulting in a less favorable actual rate. The spread varies by provider, currency pair, liquidity, and transaction amount.
How Crypto Assets Are Converted
A CEX matches buy and sell orders through an order book, while a DEX commonly uses an AMM to set prices according to the proportions in a liquidity pool. The larger a trade is relative to the pool, the greater its price impact may be. Stablecoins can also serve as a bridge between fiat currencies, but still involve risks such as depegging, dependence on deposit and withdrawal services, and regulatory uncertainty.
Original Tutorial
https://www.binance.com/zh-CN/academy/articles/what-is-a-currency-converter-and-how-does-it-work