There is really very little point in just comparing currency quotes from lots of different brokers.
You need to ask some questions too!
All that happens is you get lots of quotes that mean absolutely nothing and will give you no indication of which currency broker offers the best exchange rate.
This is mainly because the underlying exchange rate moves all the time. If a currency broker sends you a quote it will be indicative and have changed completely by the time your account is open.
The only way to compare currency quote for large transactions is to ask this very simple question.
“How far from the mid-market are your exchange rates?”
That is it.
Anything more than 0.5% from the mid-market for a conversion between £50,000 and £250,000 is too expensive. Aim for 0.4% for between £250,000 and £500,000 and 0.3% for over £500,000.
To clarify the “mid-market” is the live currency rate between which the banks buy and sell.
You may have noticed that currency brokers do not publish this. That is because most currency brokers standard rates are 1% from the mid-market. Whilst this is a significant discount from the banks who have historically charged around 3-5% for currency conversions then add fees for international transfers it is possible to get a much better rate.
So when you compare money transfer services always go with a broker that is prepared to offer fixed and transparent exchange rates.
If you want to compare currency broker exchange rates you need to know what a broker’s mark up is.
You can find this out by asking these two simple questions:
- How far is my price from the mid-market?
- Is that rate fixed?
You will get an answer as a percentage i.e. “our rates are 0.5% from the mid-market.” What this means is that the broker’s fees are 0.5% of the transaction value. So if you are converting £100,000 it will cost you £500 in fees. You won’t see this on a statement because it will be built into the exchange rate, which the broker widens from the mid-market.
- If the broker’s percentage from the mid-market was 0.5% your price would be a little better.
- You would be selling 100,000.00 Pound Sterling (GBP)
You would be buying 125,690 Euros (EUR)
Your exchange rate 1.2569
Mid-market exchange rate 1.2632
- The broker has charged you EUR 630 (£500)
So, why don’t banks and some brokers just show you what percentage from the mid-market a broker charges?
Probably because they are overcharging you.
After all exchange rates can move around 1% in a day so the exchange rate you are given by a currency comparison site is at best a guide. By the time you’ve actually got round to getting an account open and arranging the transfer, the price will have moved.
You also need to ask if that percentage is fixed. It’s all very well a broker saying they will charge you 0.5% then changing the rate after your initial deal.
You may also find our 10 step guide to preparing for a large currency conversion and international transfer helpful.
Watch our video on how to compare exchange rates here:
This interview was recorded on 13th August 2019 with Mark Phipps from Linear International Payments
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Richard founded the Good Money Guide (previously Good Broker Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.