Let’s say you have an account denominated in USD. You open a long position of 10,000 EUR/GBP @ 0.88500 and close your trade @ 0.89500, generating a profit of GBP100.
The cost of converting GBP100 profit back to your home currency (USD) would be USD0.64, based on current market rates at the time of calculating.
How this is calculated:
In order to convert GBP100 of profit to your account home currency (USD), you would use the GBP/USD exchange rate plus the currency conversion fee.
Let’s assume the GBP/USD exchange rate is:
In this case, the profit is a credit to the account, so the bid price is used (if it had been a debit as a result of a loss, the ask price would have been used):
Profit converted to USD without the mark-up = 1.29530 X 100 = 129.53 USD
However, OANDA’s methodology is to charge a mark-up on the mid-price for the currency conversion to your home currency:
New bid = midpoint price x (1 - x%)
New ask = midpoint price x (1 + x%)
Where x% = mark-up (0.50%)
Midpoint price = (ask + bid)/2
Midpoint price = (1.29530 + 1.29550)/2 = 1.2954
Fee adjusted exchange rate to convert GBP to USD = 1.2954 x (1 - 0.5%) = 1.288923.
The GBP100 profit on the trade will result in a credit to your account when it is denominated in USD of: 1.288923 X 100 = USD128.89.
This is 0.64 USD less than using the straight exchange rate and represents the cost of trading in GBP when the account is denominated in USD for this example.