If you have a large foreign exchange conversion or international transfer coming up. Here are my three top tips to save money and protect yourself from an expensive move in currency prices.
1. Use a currency broker for the best possible exchange rate.
Avoid the poor exchange rates offered by banks and use a foreign exchange specialist to convert your money. By using a currency broker you can convert money at a much better rate meaning you will send or receive more on the conversion.
2. Get your currency broker account open well ahead of time.
This is not overly obvious but make sure you open your foreign exchange account as soon as possible. You will need to provide your broker will ID (a scan of your passport) and three years address history if you are an individual and usually takes about an hour.
However, sometimes there can be issues getting an account past anti money laundering checks so don’t leave it to the last minute or you could miss a good exchange rate.
For business foreign exchange the due diligence process can take a little longer as checks need to be done on the company and also the individuals associated with it.
For simple account openings it can take a few hours, but it can take up to a week if documents and directors signatures and ID’s need to be gathered.
3. Use a currency forward to buy now and pay later.
If you have a foreign exchange transaction coming up that you know you will have to make it is possible to lock in the current exchange rate with a currency forward contract. These are very common and is basically a form of buy now pay later for foreign currency.
The main benefit is that you can lock in a preferential exchange rate if you are worried the price may move against you. It’s not uncommon for exchange rates to move up to 10% in a few months so if you are buying a Villa abroad or have an import order for £300,000 that 10% move could cost you an extra £30,000.
Of course, if you use a currency forward and the price moves in your favour you have lost out on saving some money, but you have at least budgeted effective. But there are tools such as stop entry orders dependent on your risk appetite.
Now watch our video on the top three mistakes people make when sending large amounts of money abroad and how to avoid them
This interview was recorded on 13th August 2019 with Mark Phipps from Linear International Payments
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.