10 February 2016

Changing the way you exchange currency

Prior to the last 15 years, this sector was incredibly opaque and retail banks were the only route to transacting one currency for another.

Prior to the last 15 years, this sector was incredibly opaque and retail banks were the only route to transacting one currency for another. Fast-forward to the present day and whilst banks still hold the majority of the market share, there is now an alternative option for a private client in the form of a specialist foreign exchange broker. 

For many, the convenience of using their existing relationship with their bank is all too appealing. ‘Stick with what you know’ is a regular mantra and the perceived added security, along with a long-standing relationship with ‘my bank manager’ can mean that assumptions on competitive pricing and top quality service are often unfounded. 

Foreign exchange brokers are able to invigorate this sector of the market

The simple fact is that retail banks have extremely high overheads and regardless of your status, banks are not charities. In fact, to the contrary, banks have shareholders to appease and so margin and profit are never far away from their products and services offered. If you are a large corporate business transacting high volumes of foreign exchange then the chances are that you will receive an acceptable level of service and more competitive rates of exchange, on account of all the ancillary products and services that you have tied in with the bank. Alas, the reality for a private client is somewhat different.

Foreign exchange brokers are able to invigorate this sector of the market, as it is simply too cumbersome and resource-heavy for institutional banks to deliver the same level of service that brokers can provide – and certainly not for the reduced margins that brokers tend to charge. The net effect of this in all cases, is far better value for the amount of currency that is to be sold or bought. Furthermore, these brokers set themselves apart from banks by offering what clients want, rather than what the institution demands; namely, a single point of contact to speak with directly, who knows the account and understands the unique requirements. This, along with a flexible suite of products to suit individual circumstances and proactivity on any market moves that may impact the specific requirement, all add up to a number of compelling ways that individuals could benefit from using a foreign exchange broker.

Undoubtedly, one of the barriers to private clients moving their business over to these foreign currency specialists is the safeguarding measures in place to protect their monies. Often, ‘brokers’ are pigeonholed into a rather dubious space, regardless of the sector that they serve and as a result individuals are reticent to take on the ‘perceived’ risk of dealing outside of the banks. 

Having said that, in this day and age, reputable brokers are supervised by the FCA and take their compliance processes and client fund security extremely seriously, with segregated client accounts being the norm. Furthermore, the majority of these brokers tend to have all of their client accounts held with these same big name institutions, with which you are already transacting. 

As far as administration is concerned, foreign exchange brokerages tend not to have any account opening fees or charges to transact. Once you have been through the account opening procedure, a client account is allocated at the underlying clearing institution in every major denomination of currency that you wish to trade.

With the account active, there is no obligation to trade unless you are willing to accept the price offered. With this in mind, there is an argument to suggest that having a relationship with a foreign exchange broker will, at the very least, provide a great way of benchmarking that long standing relationship that you have with your bank. Should the price and service that you receive be better than your usual trading method, then you can transact with your specialist foreign exchange provider, and who knows, maybe change the way that you exchange your foreign currency forever.


For more information on how you can manage your foreign exchange requirement, contact Global Reach Partners on 020 8108 3883 or email info@globalreach-partners.com

JM Finn & Co is not able to give FX advice. Clients who wish to explore the possibilities that this article opens up should seek specialist advice.

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