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Home Opinion TorFX - Jon Beddell Blog Corporate money transfers and your broker
Corporate money transfers and your broker PDF Print E-mail
Written by Jon Beddell   
Monday, 01 March 2010 12:18
Top tips for corporates when selecting a foreign exchange broker.



Over the last few years companies and individuals alike have been turning to the services of independent foreign currency brokers rather than pursuing the traditional avenue of the high street bank when it comes to exchanging currency and making international transfers.  Brokers offer two things that the banks do not.  

Firstly, wholesale pricing, usually referred to as "commercial exchange rates".  

These rates can typically improve on bank rates by as much as 3% on large currency transactions, which translates into thousands of pounds of savings on a £100,000 exchange.  

>> Visit TORfx foreign exchange brokers

The other reason to turn to a specialist firm is the availability of expert advice and risk management tools that are not readily available from the banks.  Consider a typical foreign property purchase.  

A British buyer who agreed to purchase a property in Australia six months ago would have been basing their budget on an exchange rate of 1.95.  

That would mean a property priced at AUD 195,000 would effectively be costing £100,000 at the time the purchase was agreed.  However, by the time surveys, chains and legal work are taken in to account property transactions typically take a few months to complete.  

Over the last six months the Sterling/Australian dollar exchange rate has plunged to 1.65, which means that same property will now cost our buyer £118,000.  

By using a currency broker, the British buyer would have been able to fix the exchange rate as soon as the purchase was agreed, and while the rate was still trading at 1.95.  

This is known as a "forward contract".  You simply call your broker, tell them how much currency you want and when you will need it, and they will buy the currency immediately and hold it for you until you are ready to complete.  This facility entirely removes the risk of volatile exchange rates spoiling your plans; especially important considering the pound's recent weakness.
 
Other facilities which can help clients achieve better exchange rates are the various order types available.  For example, if you don't want to buy your currency now, but would like to hold out for a better exchange rate, you can leave a "limit order" with your broker, which basically means an order to buy your currency as soon as your target exchange rate is reached.  

If you are concerned about the rate dropping, you can also set a "stop order", which is an instruction to buy your currency if the exchange rate drops to a specified level.  This is usually your "worst acceptable" level based on your budget.  These order types allow you to take advantage of volatility rather than simply being at the mercy of the markets.
 
  Most currency brokers offer similar benefits.  A dedicated account manager, better exchange rates, forward contracts.  So how easy is it to chose a broker, and what should you be looking for when selecting a broker;
 

Top Tips for selecting a foreign exchange broker

 
1) Make sure you are dealing with a well established company with a five year track record.  Check the company's annual report and accounts.  They should be able to provide this on request.

2) Are they regulated by HM Revenue & Customs?  Ask for their MLR number.  You can verify this with HMRC.

3) Are they members of trade associations such as the UK Money Transmitters Association?

4) Don't be afraid to ask questions to satisfy yourself that you are dealing with a reputable company.  For example, how many employees do they have? (you are much safer dealing with a larger, professional organisation rather than a small company or start up)  Do they give information about their directors and company officers on their website?

5) Only deal with brokers who operate segregated client accounts.  They should be able to provide a letter from their bankers confirming this.

6) Is your broker transparent about what the exchange rates they offer.  For example, are they willing to offer you a fixed spread from the interbank rate?  Larger FX brokers will probably have access to the interbank rate (the rate at which banks trade large blocks of currency with each other), and should be willing to guarantee to add a fixed margin to that rate whatever the market is doing.  That helps you to know you will always be getting a good deal whenever you trade.

7) Is your broker FSA regulated, or in the process of applying to become authorised? (all money transmitters are now required to be authorised by the FSA as of November 1st 2009, but established companies have until April 2011 to become authorised).

8) Does your broker offer market analysis specific to the currency you are interested in?

9) If you ring around to compare exchange rates, make sure you are being quoted a "live trading rate" and not the "interbank rate".  Some brokers will quote the interbank rate in order to persuade you to register, only to then explain that the actual exchange rate you can achieve will not be quite that good.

10) Sign up for email updates to get a feel for how proactive your broker is, and how impartial the advice.
Last Updated ( Monday, 01 March 2010 12:22 )
 

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