Peer to peer foreign exchange and currency brokers work by matching up buy and sell orders from a pool of clients in different countries.
A bit like an international stock exchange but instead of allowing customers to buy and sell shares of companies they can buy and sell currencies online.
They have gained popularity as people who convert and transfer money online are generally savvier and are looking for cheaper alternatives to the banks.
The banks make money on foreign exchange by the difference in the price they buy international currency and the price at which their clients buy it.
Peer to Peer FX (like Transferwise) companies don’t do this, instead, they match up buyers and sellers as close to the mid market price as possible. A bit like betting exchanges they just match orders – come take a commission, some add it to the spreads.
Most peer to peer currency companies need some liquidity from currency brokers and prime brokers though as often there are not enough matching orders from corresponding companies to make the process work.
If you are sending a small amount of money abroad peer to peer foreign exchange brokers like TransferWise may be a cost-effective solution, but for larger personal amounts of if you need a foreign exchange specialists to help with your international payments, a traditional currency broker like Currencies Direct may be the better option.
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