As with anything in life when you are buying or selling it is imperative that you shop around to ensure you achieve the best price possible. The same must apply when it comes to the sale or purchase of non-domestic currency. The obvious and easy route is via your bank, as naturally, it is the easiest option. This, of course, comes at a price, banks charge by adding a spread or margin around the interbank currency rate. These can be high as 2-5% of the transaction size.
We would always advise that anyone exchanging currency firstly makes themselves aware of where the interbank market is currently trading. There are thousands of websites such as Bloomberg and Reuters where the information is updated regularly, once you aware of where the real market is, you can deduce how much margin your provider is taking. The second stage is shopping around, there are many online FX brokers out there and opening an account can be as simple as sending over ID and a utility bill with a one-hour turnaround. We recommend you to research the company to ensure it is financially solid with good independent reviews, Trustpilot is a platform which is great for this purpose. Currently, we see a lot of students using TransferWise and making savings through their money transfer service.
You will now have the ability to compare live prices. The providers are companies designed to make the process as simple and straightforward as possible when you are at the stage where you wish to transact, you can request a price from your bank and FX broker simultaneously. You then have two options and can choose the most cost-effective price.
Alternatively, if you can see the bank is charging a higher margin yet it is your preference to trade with them do not be afraid to contact them and let them know you are being offered a better service elsewhere. You can request that they improve their price, this does happen and it also informs your bank that is aware of other market pricing and it can help improve their competitiveness on future transactions.
Avoid complacency, just because one company offers you a great rate once, it does not mean they will always be the most competitive price each time you are looking to exchange, so be sure to maintain comparison on every transaction. This is applicable to everyone, whether you are an individual, an accountant or a financial director, it is imperative you understand how to achieve the best pricing for your foreign exchange and understand FX Hedging against known exposures.
If you want to learn more about FX and be prepared we run a 3-day course in “Understanding Currency Exposure”. We cover all aspects of transactional FX and hedging, through our course, we have been able to provide large savings for our students.