# How Third-Party FX provision works in Nexus
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This page relates **only** to third-party FX Providers.
For Source PSPs that provide their own FX, a different process applies. See [Payment setup for PSPs who provide their own FX](/payment-processing/payment-setup-for-psps-who-provide-their-own-fx.md) for details.
{% endhint %}
## Key Concepts: Rates vs Quotes
In Nexus, a **rate** refers to the exchange rate at which a third-party FXP is currently willing to exchange one currency for another. A rate is not specific to a single transaction or PSP. A rate is valid until an FXP sends an updated rate (or withdraws the rate entirely).
Nexus uses rates uploaded by the FXP (step 1 & 2 in the diagram above) to generate **quotes** which are provided to Source PSPs whenever they call the `GET /quotes/` API operation (steps 3 & 4). Quotes are specific to the PSP making the request.
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To allow the Sender time to prepare and approve their payment instruction, an FXP must honour quotes for 10 minutes after the quote is first shared with the PSP (even if the FXP has since changed the underlying rate). (See [Quotes](/fx-provision/quotes.md#toc163809597).)
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When a Source PSP uses a third-party FX Provider, the Source PSP must reference the FX Quote ID in a payment instruction (`pacs.008`) so that Nexus can verify and apply the exchange rate specified before it forwards the payment instruction to the Destination Country. (See [MESSAGE: pacs.008 FI to FI Customer Credit Transfer](/messaging-and-translation/message-pacs.008-fi-to-fi-customer-credit-transfer.md#toc159257069)).
{% hint style="info" %}
A different process applies when the Source PSP acts as FXP to itself – see [Payment setup for PSPs who provide their own FX](/payment-processing/payment-setup-for-psps-who-provide-their-own-fx.md)).
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An overview of the process for generating and processing rates and quotes is given below. Further details are given in later sections.
## Step 1: FXPs provide rates to Nexus
* An FXP must use the `POST /rates/` API operation to inform Nexus of the (base) rate at which they are willing to swap the Source Currency (the Sender’s currency) for the Destination Currency (the Recipient’s currency).
* **A rate in Nexus describes the going rate** or **base rate** at which an FXP is willing to swap one currency for another.
* **The rate is not specific to a single transaction.** FXPs are not asked to quote or bid on individual transactions. This means that when an FXP provides a rate to Nexus, they are effectively saying “Until further notice, for any Nexus payment, I’m willing to exchange Currency A for Currency B at exchange rate X”. “Further notice” is given when the FXP sends another revised rate via the `POST /rates/` API.
* **An FXP may define whether larger transactions qualify for improved rates**. For each currency, an FXP may (optionally) set one or more tiers with minimum thresholds at which a transaction qualifies for a specific improvement. (See [Improving rates for larger transactions](/fx-provision/rates-from-third-party-fx-providers/improving-rates-for-larger-transactions.md).)
* **An FXP may also instruct Nexus to improve the rates it offers to specific PSPs. (See** [Improving rates for specific PSPs](/fx-provision/rates-from-third-party-fx-providers/improving-rates-for-specific-psps.md)**.)**
* (Under certain conditions an FXP may also use the `DELETE /rates/` API to withdraw their rates from the market – see [Rates from Third-Party FX Providers](/fx-provision/rates-from-third-party-fx-providers.md#toc163809589)).
## Step 2: Nexus provides quotes to PSPs
When a Sender initiates a payment, they must define EITHER the **amount they wish to send**, in the Source Currency, OR the **amount they wish the Recipient to receive**, in the Destination Currency.
1. The Source PSP will then ask Nexus for quotes for that specific corridor and amount via the `GET /quotes` API
2. Nexus will retrieve (base) rates from all FXPs that have a business relationship with the Source PSP. (See [Onboarding PSPs](/fx-provision/onboarding-psps.md).)
3. For each FXP's rate, Nexus will retrieve and apply any applicable improvements based on the requesting PSP or the size of the transaction. (See [Improving rates for larger transactions](/fx-provision/rates-from-third-party-fx-providers/improving-rates-for-larger-transactions.md) and [Improving rates for specific PSPs](/fx-provision/rates-from-third-party-fx-providers/improving-rates-for-specific-psps.md).)
4. For each rate, Nexus will calculate the relevant *Destination PSP (Deducted) Fee,* which is an amount that the Destination PSP retains from the value of the funds before it credits the Recipient. (See [Fees](/payment-processing/fees.md)) (This is calculated now so that Nexus can inform the Source PSP exactly how much will be credited to the Recipient’s account, after the *Destination PSP (Deducted) Fee* has been deducted.)
5. Nexus generates a list of payment-specific **quotes** with unique quote IDs - one quote ID for each FXP that has a business relationship with the Source PSP. Each quote describes a **final** **exchange rate** (with any improvements already applied) offered to a specific PSP by a specific FXP for a specific currency pair.
6. A PSP may select any a quote from any of the FXPs in the list. (The list will not include quotes from FXPs with which the PSP does not have a business relationship with.)
7. **The final exchange rate provided to the Source PSP is the exchange rate that the FX Provider charges to the Source PSP. The rate** is the ratio between the amount that the Source PSP pays to the FX Provider (in the Source Currency), and the amount the FX Provider pays to the Destination PSP (in the Destination Currency).
{% hint style="info" %}
The Source PSP may charge the Sender more than they transfer to the FX Provider. The difference between the amount debited by the Source PSP from the Sender’s account and the amount transferred from the Source PSP to FXP is known as the *Source PSP Deducted Fee. See* [Fees](/payment-processing/fees.md).
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1. The Source PSP must show the Sender the amount that will be debited from their account, the exact amount that will be credited to the Recipient’s account, the *effective* exchange rate and any fees that apply to the payment. (See [Fees](/payment-processing/fees.md#toc163731038) for details.)
2. The Sender has an opportunity to accept those payment terms, or cancel the payment.
See [Quotes](/fx-provision/quotes.md) for more information.
### Step 3: Payments are processed against a specific quote
* Assuming that the Sender accepts the final exchange rate offered by their PSP, the Source PSP will initiate a payment instruction by sending a `pacs.008` message to the Source IPS.
* The message will include the chosen `FX Quote ID` so that Nexus can validate that the exchange rate included in the `pacs.008` is correct. (See [MESSAGE: pacs.008 FI to FI Customer Credit Transfer](/messaging-and-translation/message-pacs.008-fi-to-fi-customer-credit-transfer.md#toc159257069).)
* As the payment is processed, the FXP will:
* Receive funds from the Source PSP via the FXP’s account at the Source SAP. (This payment is processed through the Source IPS.)
* Pay out funds to the Destination PSP from the FXP’s account at the Destination SAP. (This payment is processed through the Destination IPS.)
* When the payment is completed, the FXP holds more of the Source Currency in its account at the Source SAP, and less of the Destination Currency in its account at the Destination SAP.
From the perspective of the FXP, this process is equivalent to a trade where they buy (receive) the Source Currency and sell (pay out) the Destination Currency. Because the FX Provider is selling one asset (the Destination Currency) for another (the Source Currency), the FXP gets to determine the “price” ie the FX rate at which it is willing to swap those assets.
In a conventional FX trade, the FXP would “deliver” the Destination Currency back to the buyer (in this case, the Source PSP). However, in Nexus, the FXP delivers the Destination Currency directly to the Destination PSP. This enables the Source PSP to make a payment to the Destination PSP, even though the Source PSP never directly holds the Destination Currency.
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