What is a currency broker?
A currency broker buys and sells currencies directly to customers and transfers the money internationally.
Currency brokers go by different names.
Sometimes they are also called foreign exchange brokers, currency exchange companies, or money transfer companies.
Regardless of the different financial jargon used, they are all doing the same thing…moving money from one country to another.
Forex brokers or FX brokers should not be confused with currency brokers.
A forex broker provides a trading platform for customers to speculate on the movements in currencies for profit (or loss).
Whereas a currency broker moves real money.
How does a currency broker make money?
There are two common charges made by banks or currency brokers: exchange rates and transfer fees.
1. Exchange rates
There is no such thing as standard exchange rates.
Each currency broker or bank will offer you their exchange rates.
A currency broker or bank will make their money on the difference between wholesale and retail rates, much like a supermarket adds a markup.
However, unlike a supermarket, wholesale currency rates are changing constantly throughout the day – every few seconds normally.
The broker or bank may have fluctuating margins as they source their currencies from different providers. So, it’s not just a case of a fixed wholesale price. It’s on the move all the time.
When you get an exchange rate quote from a currency broker or bank, it will include a markup (or ‘spread’) on top of the fluctuating wholesale rate.
2. Transfer fees
These fees vary considerably between banks and brokers.
A transfer fee is normally a flat amount that is charged per transfer and is in addition to the money made from the exchange rate.
Almost all UK and European banks and even some currency brokers will charge you a transfer fee every time you send money abroad.
Transfer fees are normally in the region of £10 to £25 per international money transfer.
A trick used by some banks is to charge you twice for the one transfer – by having a fee for the sending and receiving bank.
However, you can avoid transfer fees altogether.
Some currency brokers, such as Key Currency, charge no fees at all.
5 reasons why you really shouldn’t use your bank…
- Currency exchange is not their area of expertise
- Their exchange rates are uncompetitive
- Banks charge you transfer fees
- They won’t help you with getting a better exchange rate
- You are not their priority
Can you trust a currency broker?
These days, you can normally find out a fair bit of information about any company online.
The first thing I would look at is customer reviews.
I’m sure some companies fake their reviews, but you can normally tell if reviews are real or fake.
Also, take a look at the currency broker’s website and see if the people behind it are shown. I steer away from companies that hide behind jargon.
You should check that any currency broker you use is Authorised by the Financial Conduct Authority (FCA).
The reason Authorisation by the FCA is so important is that it means your money will be segregated from company funds and held in a safeguarded client account.
In basic terms, your money will only be used to carry out your transfer.
If a company is NOT Authorised by the FCA, I would give it a miss.
Why take the risk? I certainly wouldn’t, no matter how big or small the amount involved.
My advice is simple – to ensure your money is safe, only use currency brokers Authorised by the FCA.
To check whether a firm is authorised, you can search for its name on the FCA register or a firm lookup (for example FirmSearch).
Three benefits of a currency broking service
Here are three reasons why you may prefer to use a currency broking service as opposed to an online platform.
1. You have your payment details checked
One common mistake in international money transfers is with the beneficiary details (where you want your money sent).
It’s why we double-check to prevent problems.
Plenty of places leave you to your own devices, and inevitably mistakes happen and money goes missing. We hear it all the time from customers who have dabbled with online platforms.
It can take a long time to recall missing funds from foreign banks, so prevention is better than cure.
2. Guidance on exchange rates
I’ve found a lot of customers find it difficult to know when to exchange their money.
Exchange rates change every few seconds.
It probably isn’t the best use of your time or energy to watch exchange rates move around all day.
While no one has a magical crystal ball, you may find it very useful to speak to someone who is familiar with the daily patterns in rates and is aware of upcoming news and events.
Bear in mind that even small, fractional moves in exchange rates can have a big impact on the amount of money you will receive.
A 0.75% swing in the rate on a £50,000 transfer would mean a £375 difference to you. Swings of that magnitude happen every week.
A currency broker can work with you to achieve a favourable rate and avoid risk.
3. You know what’s happening with your money
No one wants to be left in the dark.
Particularly if you are sending a large sum of money.
It’s perfectly reasonable to want to know where your money is when it’s been sent out, and when it’s due to arrive at the other end.
You’d be amazed how many currency brokers don’t bother with basic communication.
A good currency broker will talk you through the money transfer process, and keep you informed at every stage!
How to find the best currency brokers in the UK
I’ve been a customer too, so I know it’s hard to get solid information on the internet.
It’s no longer a case of looking through the Yellow Pages for A.A.Abraham Currency Brokers.
The best currency broker comes down to trust, transparency, and value for money.
Knowing a currency broker is Authorised and Regulated by the FCA should give you a degree of trust.
The Authorisation process involves all kinds of checks on the directors’ backgrounds, the company’s financial position, the systems and controls, and the compliance procedures. It’s an important safety check.
Another easy way you can assess trustworthiness is to read through customer reviews. It’s the modern-day equivalent of word-of-mouth.
One last check I do is to see how transparent a company is by looking at its website.
- Who owns the company?
- Who works there?
- Where are they based?
Lots of companies hide this information. Speaks volumes in my opinion.