January 16, 2024

FX bps explained: How Superhero’s currency conversion works

FX bps on Superhero explained. An in-depth guide on basis points, currency conversion fees and how Superhero’s fees compare.

By Stella Ong

Home > Blog > Learn > FX bps explained: How Superhero’s currency conversion works

Superheroes who trade in the U.S. markets may have encountered the term "basis points (bps)", which is often quoted during the process of converting Australian Dollars (AUD) into U.S. Dollars (USD) within their Superhero wallet. 

This article aims to better inform you on what basis points are and what it means for investors using Superhero.

What are basis points?

Basis points, often shortened to "bps", is a unit of measure used in expressing changes in interest rates, exchange rates and other percentages used in financial markets. 

One basis point is equivalent to one-hundredth of a percentage point – equal to 0.0001 or 0.01%. An increase from a rate of 3.25% to 3.35% for example represents a change of 10 basis points.

Using basis points provides a more precise way to discuss and compare small percentage changes without dealing with decimals. It's a universal form of measurement used in financial institutions all over the globe. 

When are basis points used in investing?

Basis points are most often used in the context of interest rates, the stock market and in foreign exchange rates. 

As an investor, it is beneficial to familiarise yourself with the concept. 

The following sections illustrate how the term is used in different scenarios. 

Interest rates 

The Reserve Bank of Australia (RBA) often uses the term "basis points" in its interest rate decision announcements, stating phrases such as "the Board decided to raise the cash rate target by 25 basis points" to illustrate an overall increase of 0.25% to the cash rate.

Similarly, a bank may decrease its mortgage rates by 50 basis points. This means that a mortgage rate that was formerly 6.50% would now be 6.00%.

Stock market

Basis points are also often used in the context of the stock market. 

It can be used in expressing price changes in stocks. For example, if you read that AAPL’s stock price went up by 100 basis points, it means that AAPL’s stock price increased by 1%.

Similarly, basis points can be used in expressing changes in dividend yields. If AAPL’s dividend yield increased by 10 basis points, this equates to a 0.10% increase in AAPL’s dividend yield.

Foreign exchange (FX) rates

In the context of currency conversion, which is the main focus of this article, basis points may be referenced to indicate the percentage difference in exchange rates or when quoting conversion fees. 

How are basis points used on Superhero?

On Superhero, the term "bps" is mainly used for quoting our currency conversion fee

Australian Dollars to U.S. Dollars

For those converting Australian Dollars (AUD) to U.S. Dollars (USD), our currency conversion fee is a fixed 70 bps (in USD) per AUD converted. More specifically, that means that the conversion fee is US$0.70 per A$100 transferred.

If you are converting A$100 into USD and the current FX rate is 0.7500 AUD/USD, you will effectively be exchanging at a rate of 0.7430 after fees. Overall, you will be receiving US$74.30 in exchange for your A$100, net of conversion fees.

bps superhero

How Superhero's U.S. trading fees compare 

Trading securities on the U.S. markets usually subjects you to both brokerage fees and FX conversion fees, however, Superheroes enjoy $0 brokerage for U.S. trades.

Here’s how our fees compare:

Superhero Stake Selfwealth
Brokerage on shares $0 US$3 or 0.01% over US$30k US$9.50
Brokerage to buy ETFs $0 US$3 or 0.01% over US$30k US$9.50
FX fee 70 bps 70 bps 60 bps
Total fees (brokerage + FX conversion) on a trade size of A$1,000 converted into USD US$7.00 US$10.00 US$15.50

 

Note: Superhero’s pricing is compared against other brokers’ pricing accessed from their websites as at 02 January 2024. For up-to-date details on other brokers’ pricing, visit their websites.