Banks v Foreign Exchange Brokers: Similarities & Differences

When you need to make a foreign money transfer, regardless of the size, you need to get the best deal you can. Even small fluctuations in exchange rates can make a massive difference to the amount you are left with after exchanging. For example, a small increase in the exchange rate of just 1% on a money transfer of £100,000 will result in a £1000 loss. Can you really afford to lose out?
 
The Money Transfer Service Itself
Banks and FCA regulated currency brokers both offer money transfer services. Unfortunately, this is pretty much where the similarities end.
The significant difference between a bank and a foreign exchange specialist is that specialist currency brokers will offer far sharper pricing. Banks typically apply exchange rate markups of around 2-4% away from the real exchange rate. On a £100,000 trade, this could end up setting you back £4,000 in fees ‘hidden’ within the rate of exchange.
 
A Great Deal On Your Exchange Rate
Banks will typically give you access to the exchange rate released in the morning whilst a broker will give you access to the live market rate. Reputable FCA authorized and regulated currency brokers buy currency directly from the capital markets. Expect to pay anywhere between 0.5-1% away from the interbank exchange rate with a reputable currency broker.
 
Forward Contracts & Limit Orders
Unlike banks, independent foreign exchange brokers will offer you smart currency contracts that can mitigate against the risk of adverse currency fluctuations. For example, you can book a forward contract, effectively reserving today’s rate for delivery in the future. All that is requested is a 5-10% deposit. Likewise, currency brokers can watch the market on your behalf, and strike when the rate hits certain levels. Unless you are a corporate transacting in the tens of millions, this isn’t typically a service offered by banks.
You can learn more about forward contracts in this video
 
How To Find A Reputable And Accredited Foreign Exchange Broker
Never settle for the first deal you come across when making international payments. Shop around, read reviews, ask for recommendations and speak to family & friends. Whether you are purchasing overseas property, emigrating or making business payments, with a bit of frugality you can find a fair and cheap deal on currency.
 
Author Bio
This is a guest contribution written by Aviva Tabachnik, resident currency expert at OPP award winning foreign exchange comparison website MyCurrencyTransfer.