Why use a currency broker?
Mike Steenkamp, MD of currency brokers FC Exchange looks at why currency brokers are in a position to secure you a good deal when buying currency for your overseas-property transaction
Question: We are in the process of paying for our new property in France, we've heard that currency companies can get us a better deal, so why should we use a broker to transfer our currency?
Answer: High-street banks will always remain the first port of call for most people when it comes to doing anything financial. When buying or selling a property abroad you should always consider, investigate and compare alternative routes for carrying out your transactions. The obvious default option is the bank; however this is often not the most cost-effective way. So what is it that makes brokers better than banks? One could almost certainly argue that brokers are better because they are more competitive and have lower fees, which makes them extremely cost effective. Brokers are generally more approachable from the perspective that most don’t operate with the use of call centres, so clients always have direct access to a much more personal service where an individual broker is responsible for handling their requirement from start to finish. Brokers are generally more flexible too: most have developed a variety of specialised industry-related contracts and products that allow them to cater for individual circumstances, something that banks have trouble doing. Remember, brokers exist because they have direct market access to investment banking exchange rates; this access, along with much lower operating costs, gives them the ability to undercut high-street banks when it comes to the exchange rate and buying currency.
The biggest question is: how did the banks manage to lose a share of a market place that they controlled for such a long time? Well, it's simple really, brokers basically took something that already existed and just made it better. The Foreign Exchange market is a prime example of a specialised money market that has been created and operates within a much bigger financial market.
The FX market is highly complex and extremely liquid; it is also unique because it is unlike any other financial market. Exchange rates change continuously and can move a large amount in a relatively short period of time. A lack of knowledge and a poor understanding of what affects the exchange rates is what makes this market particularly unforgiving.
Currency brokers have become the preferred method of transferring funds abroad because they have developed a good understanding of what makes exchange rates tick. Knowing where to buy currency is one thing, knowing when to buy it is another. Most brokers make a point of studying economic calendars, which highlight pieces of data that are due for release in the future. There is obviously no way for anyone to know future prices, however knowing what the market is due to release within your timescale will help you manage the risks associated with exchange rate fluctuations.
As mentioned above, brokers also have access to a wide range of products, which ultimately enable them to provide a better service that can be tailored to accommodate individual circumstances. What most people don't know is that there are in fact a number of different ways to buy currency. Your broker will be able to explain how the different contracts work, and which contracts are best suited to your individual requirements.
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The most important thing to consider before moving any money though, is the security of your transaction. Make sure that you do your homework first and use a reputable company. Remember that any company operating as a money service provider has to be registered and regulated by HM Revenue and Customs, their registration details should be clearly marked on both their website and paperwork.