International Money Transfers Explained

What is the difference between a bank and a foreign exchange broker?

Foreign exchange brokers specialise in transferring funds internationally for clients. As this is their sole business they focus on getting clients a rate that is as close to the interbank rate as possible, whilst reducing or eliminating transfer fees and giving clients access to valuable products that can protect them from negative exchange rate movements in the future.

Most brokers quote their exchange rates based on the live interbank rate at the time you call them, whereas many banks set their rate first thing in the morning and hold this rate for a certain amount of time throughout the day. The closer you get to the interbank rate the better, so if your quote is based on the live rate you are more likely to achieve this.

The key benefits of using a foreign exchange broker

• Better exchange rates than the banks
• Typically save between 0.5% - 4% on the amount transacted
• Faster international payments (often same day is possible)
• Forward contracts – fix the rate for a date in the future
• Protection from negative rate moves in the future with currency options
• Regular transfer systems to help if making regular mortgage payments or transferring spending money
• Bespoke and professional service with your own dedicated consultant

Please note that some of these products or services may not be available through all foreign exchange brokers. For more information take a look at the comparison tables.

Foreign exchange products

When you transfer money abroad through a foreign exchange broker, there are a range of different products available to you to help you save money and ensure your international payment will reach its destination account on time.

The products explained in detail:

Spot contracts

If you already have the funds in place, you could arrange a spot transaction. This is simply the exchange of one currency for another at the current market price where the settlement happens within two working days. A broker should be able to get you a significantly better exchange rate for this transaction.

Forward contracts

A forward contract allows you to fix a rate now for a date in the future (up to 2 years ahead). This means the rate is fixed regardless of exchange rate movements, thereby protecting you if the exchange rate moves against you.

Currency options

Like a forward contract, a ‘currency option’ allows you to exchange one currency for another on a future date, thereby protecting you from negative movements in the exchange rate. However, with an ‘option’, if the rate moves in your favour you can still take advantage of this. Only a few brokers can currently offer currency options to clients as it requires additional FSA authorisation.

Regular Payments

If you will be exchanging a set amount of funds on a regular basis, for example for mortgage payments or pension transfers, you can set up a regular payment order which will automatically transfer the funds on a regular basis.

Choosing the right foreign exchange broker for you

There are many foreign exchange brokers to choose from but for additional peace of mind it can help to use a broker that is authorised and regulated by the Financial Services Authority (FSA). A major stipulation of this regulation is to safeguard client funds by either segregating client money or having appropriate insurance in place to cover loss. By keeping clients’ money separate from the bank accounts they use to run their business, clients have extra protection should anything happen to the company.

It is always worth speaking to a broker to compare their rate against the bank and to find out what additional options may be available to you for your transfers. It is advisable to consider your options as early on in the process when you realise you will need to make a transfer at some point in the future.

Most brokers will be happy to discuss your individual requirements without you having to open an account with them. In order to book a transaction however they will require you to register and open an account which should be a simple process.

Information supplied by World First Foreign Exchange.