In the fintech world, how you handle currency can either make or break your application. One minor mistake in currency data storage or calculation can lead to significant issues, from financial inaccuracies to a complete loss of customer trust. In this blog post, we will dive into the best practices for dealing with currency.
Choosing the Right Data Type
Why Not Floating-Point Types?
Floating-point types (FLOAT, DOUBLE) might seem like an intuitive choice for storing numbers with decimal places. However, they can introduce rounding errors due to the way they are implemented in hardware. This is a classic pitfall that many junior developers fall into.
COMMON PITFALLS
Rounding errors: floating-point numbers might not store decimal numbers exactly, leading to potential rounding errors during calculations.7
Imprecision: accumulated imprecisions from multiple calculations can lead to significantly incorrect results.
$result = 0.1 + 0.2;
echo $result; // Outputs: 0.3 (which may appear correct due to implicit rounding when printing)
echo number_format($result, 20); // Outputs: 0.30000000000000004441 (revealing the error)
Pros and Cons of Fixed-Point Types
PROS
Precision: fixed-point types handle decimal numbers exactly, removing the risk of rounding errors.
Consistency: these types ensure that the decimal calculations are consistent across different hardware and software.
CONS
Performance: fixed-point arithmetic is generally slower than floating-point arithmetic. However, in financial applications where accuracy is paramount, this trade-off is often justified.
PERFORMANCE ANALYSIS
For most fintech applications, the slightly slower performance of fixed-point arithmetic (using types like DECIMAL) is a small price to pay for the added accuracy and reliability. Most modern databases are optimized to handle DECIMAL types efficiently, making the performance difference often negligible in the grand scheme of things. Fixed-point types like DECIMAL or NUMERIC offer a more reliable alternative for financial calculations.
Storing Currency in the Smallest Unit
Why Store in the Smallest Unit?
Dealing with currency often involves calculations, and working with integers (whole numbers) is less error-prone than dealing with floating-point numbers. This method effectively avoids the issue of imprecision altogether by eliminating the need for floating-point arithmetic.
Example Conversion:
// Convert dollars to cents in PHP
$dollars = 10.50;
$cents = (int)($dollars * 100);
BEST PRACTICES and RECOMMENDATIONS
Create utility functions for conversion in PHP to ensure consistency:
// Utility function to convert dollars to cents
function convertToCents($dollars) {
return (int)($dollars * 100);
}
PERFORMANCE ANALYSIS
Integer calculations are generally faster and less CPU-intensive than floating-point calculations. Given that many financial transactions involve a series of calculations, using integers can result in a more efficient system overall.
BEST PRACTICES and RECOMMENDATIONS
Always Convert: as part of your data validation and sanitization, always convert currencies to their smallest unit.
Use Utility Functions: create utility functions for conversion to ensure that it’s done consistently throughout your application.
Database Constraints: consider adding database constraints to ensure that only integer values can be stored in the currency field.
ALTER TABLE transactions ADD CONSTRAINT chk_amount_positive CHECK (amount >= 0);
Auditing and Rounding
IMPORTANCE OF AUDITING
In any financial application, being able to audit transactions is crucial for both security and compliance. Your database design should allow for easy tracing of all currency transactions.
Example:
// Logging a transaction
function logTransaction($userId, $transactionType, $amountCents) {
echo "Logged $transactionType transaction of $amountCents cents for user $userId.";
}
THE PITFALLS OF ROUNDING
Rounding errors can introduce inconsistencies into your financial data. When you round to the nearest smallest unit, it’s crucial to decide on a consistent rounding method to use throughout your application.
Example:
$amount = 10.236;
$roundedAmount = round($amount, 2); // Rounds to 10.24
COMMON PITFALLS
Inconsistent Rounding Methods: using different rounding methods in different parts of your application can lead to inconsistencies and errors.
Loss of Information: storing rounded values can result in a loss of information, especially if multiple calculations are performed on the rounded figures.
PERFORMANCE ANALYSIS
Rounding operations themselves are not particularly CPU-intensive, but errors in rounding can necessitate time-consuming data clean-up and possibly even legal difficulties if not caught in time.
BEST PRACTICES and RECOMMENDATIONS
Use Consistent Rounding: always use the same rounding method throughout your application. PHP’s round() function allows you to specify the rounding mode if needed.
// Consistent rounding in PHP
$amount = 10.236;
$roundedAmount = round($amount, 2, PHP_ROUND_HALF_UP); // Rounds to 10.24 using "half up" method
Audit Trails: always store both the original and rounded values in the database, along with metadata to trace the rounding method used.
// Storing original and rounded values in PHP
function storeTransaction($originalAmount, $roundedAmount) {
// Your database code here
echo "Stored original amount: $originalAmount, rounded amount: $roundedAmount.";
}
Common mistakes
ROUNDING ERRORS
Rounding errors can significantly impact the precision of financial calculations. In a system that handles thousands of transactions, even a tiny rounding error can add up to a significant discrepancy.
Example:
// Incorrect way to round
$incorrect = round(10/3, 2);
// Correct way to round in financial calculations
$correct = bcmul(10 / 3, 1, 2);
INCONSISTENT STATES
Inconsistent states in your database can lead to incorrect account balances, double billing, or other serious issues. Always ensure that you are operating transactions atomically to prevent inconsistencies.
Example:
$pdo->beginTransaction();
try {
$pdo->exec("UPDATE accounts SET balance = balance - 100 WHERE id = 1");
$pdo->exec("UPDATE accounts SET balance = balance + 100 WHERE id = 2");
$pdo->commit();
} catch (\Exception $e) {
$pdo->rollback();
}
NOT CONSIDERING LOCALIZATION
In a globalized fintech application, not considering localization can lead to a poor user experience. Currency formats, decimal separators, and date formats differ from one locale to another.
Example:
// US format
$us_format = number_format($amount, 2, '.', ',');
// European format
$eu_format = number_format($amount, 2, ',', '.');
Best practices
CONSISTENCY and ATOMICITY
Maintain consistency by ensuring that all transactions are atomic. If any part of a multi-step transaction fails, roll back the whole transaction to maintain a consistent state.
Example:
$pdo->beginTransaction();
try {
// Various SQL operations
$pdo->commit();
} catch (\Exception $e) {
$pdo->rollback();
}
LOCALIZATION CONSIDERATIONS
Localize your application to suit the target audience. Use localized currency symbols, decimal separators, and consider timezone differences for transaction timestamps.
Example:
// Using PHP's Intl extension for currency formatting
$formatter = new NumberFormatter('en_US', NumberFormatter::CURRENCY);
echo $formatter->formatCurrency($amount, 'USD');
