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How to choose the most suitable currency broker

Whether you need to do regular international transfers or you need to send a large lump sum internationally, it's vital to choose the most cost efficient currency broker to ensure the amount sent is not diminished by exchange rate changes or service fees.

Written by Nick Burns on 16 November 2018

Whether you’re moving abroad for work, to find a new life or retirement, the one constant concern for expats is currency management.

Every expat’s situation is different. Some expats earn money in a local currency and then frequently need to send money home to cover bills, mortgages or pay into pensions/investments. For other expats receiving an income from home, either through work, investments (often through property rental) or pensions, which then must be regularly converted into local currency.

Sometimes expats must transfer large sums of money (for example lump sum pension withdrawals, buying/selling property, or financial windfalls through inheritances) internationally and in multiple currencies.

Whatever the amount of money, each transfer will be subject to currency exchange rates, and potentially additional fees, which can mean the amount sent is not efficiently converted to the local currency at the other end of the exchange. Timing can be crucial, as are the services provided by the brokers themselves.

Therefore, it is vital that anybody transferring money knows how to select the best currency broker to meet their specific needs. It may not be the case that a particular broker that is brilliant for smaller, more regular exchanges is as suitable for larger, one-off transfers.

What is a currency broker?

A currency broker is an establishment that utilises economies of scale to achieve superior exchange rates for its clients. Brokerages will typically have a mixture of corporate and high net-worth individuals as their clients and will be able to offer different ways of purchasing currency to those offered by the high street banks.

What are the advantages of using a currency broker over a bank?

Despite the obvious of the exchange rate on the day - which can lead to savings of around 3% of the entire value of the trade – there are a number of advantages of using a specialist provider over your average bank.

Currency markets can swing in value considerably from day to day (especially with Brexit negotiations) so it is often advantageous to have an expert eye looking after things for you. A specialist will usually be able to assist with minimising the effect of the fluctuations and help you execute the trade at the most advantageous point rather than the lowest – this is often where the large savings are made.

Whilst there is nobody that can predict the currency markets with any real degree of certainty, an expert will be able to help formulate the best strategy for you to achieve the best results possible.

What should I look for in a currency broker?

Service is everything. All brokerages these days offer competitive exchange rates and quick settlement. Picking one from another can be dependent upon your requirement and the brokers willingness to help you achieve your goals.

With the volatility in the currency markets presently, having the correct strategy can literally make the difference of tens of thousands of pounds on a single trade and far outweigh the difference between prices quoted at any given moment.

What regulation do they need and how do I know my money is safe?

Every payment service provider in the UK should be regulated by the FCA under the Payment Services Regulations 2017 and HMRC appropriately. Each company should be able to provide relevant numbers which can be cross referenced on the FCA website for free.

As part of the FCA authorisation, each company should be holding client’s funds in ring fenced, segregated client accounts. This ensures that should something happen to the brokerage; all client funds would be returned in full.

What about if I am doing regular, small payments internationally?

A currency broker can help with any size of transaction and the costs would usually still be significantly cheaper than your bank. There are advantages outside of the rate also, you will have the option to secure the rate in advance for future payments to remove currency fluctuation related uncertainty.

For example, an expat that receives a pension in the UK but pays a mortgage in Spain might want to know that his GBP is going to cover his mortgage each month in EUR, without the risk that Brexit will devalue his GBP resulting in a short fall on his realised EUR. This is possible with the appropriate broker.

Key factors to consider for smaller, regular international transfers

  • Ease – maybe an online platform to manage your payments yourself is the best option?
  • Low fees – some brokers add an additional payment charge. With lower volumes, you should look to avoid a fixed fee
  • Forward buying – secure the rate on future payments to add security and peace of mind. See example above under small regular payments

What if I have a larger trade (eg. buying a house) and just want the very best rate?

What is the best rate? Take a house settlement for example, is it the best rate on the day you settle or is it the best rate between deciding to buy a house and paying for it? I would argue, the best rate is the one at the best point between the agreement to purchase and actual settlement. It is easy to buy into companies offering very good exchange rates on the day, but currencies can easily fluctuate in value by over 1% each day, so really the difference between one broker and the other is largely irrelevant.

With larger purchases, the movements in the market can have a very significant effect upon the cost of the purchase. Pick an expert that is prepared to take the time to analyse the particular pairing you are exposed to and help you execute at the peak, rather than trough. The more your broker knows about what you are hoping to achieve, and the earlier they know, the more they can help you.

Key factors to consider for larger, one-off transfers

  • Experience – pick a broker that is familiar with the nature of the payment. There are a number of differences and considerations between a house purchase or an investment for example. Nobody wants surprises or delays when handling a large transfer so pick someone that will be able to guide you through the process from start to finish.
  • Strategy – daily fluctuations are often under appreciated but can mean the difference of thousands of pounds over hours, let alone days. Having a well-planned strategy to limit your risk and take advantage of any upside targets is crucial.
  • Proactivity – a broker should act as your partner to help you achieve the best rate possible over the given time period. Pick someone that is willing to take the time to understand your exact requirement, look at the relevant pairings and suggest a good strategy. Typically, those that focus on price on the day are those that misunderstand the importance of timing a trade correctly.

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