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How does a Foreign Exchange Broker Work?

Foreign exchange or currency brokers are companies that specialise in providing services that allow clients to send one currency into another, to pretty much any destination in the world.  If you want to transfer British Pounds into Euro because you have purchased a holiday home in Spain, the broker will be able to do this for you and send the Euros to the relevant account.

Brokers are becoming increasingly popular as more and more people realise the benefits of using them.  The biggest benefit is that you will normally receive a much better rate than through other foreign exchange providers.  Because of the sheer volumes of currency these brokers trade, they are able to offer better rates than most other service providers.

Another reason why they are so cheap is that they have to be.  Why would someone use a broker to transfer their finds abroad if they were able to get the same rate through a bank they have been using for fifteen years?

In addition to the monetary benefits that come with a specialist broker, you will also find that many of them are able to help with other things – especially if you are looking to emigrate.  For example, Moneycorp helps its clients set up bank accounts in foreign countries, they offer double luggage allowance on flights and so forth.

The way a foreign exchange broker works is by purchasing currency at one rate and selling it to its clients at another.  The difference between these rates is the spread and is the way in which it makes a profit.  The wider the difference between these two rates, the more profit the company will make, and the less cash you will receive at the other end.  The two most important things for you to consider are:

1)   Are my funds secure?  Perform due diligence by checking credit ratings and online reviews on specific companies.

2)  Is the rate being offered to me the best around?  Shop around different brokers to compare rates.

Once you have decided that you are going to transfer funds with a particular broker, the next thing is for you to setup the transfer.  This is a very simple process indeed that can be completed within just a few minutes.  Please note, you will have to be registered with the broker which normally requires just five minutes of your time.

Next you need to speak to your dealer and agree upon a rate.  Don’t be afraid to barter when you speak to them and have a few quotes lined up from other brokers when you do.  Remember:  any improvement in the rate they offer you is saving you money and they will often rather take a smaller profit than lose out on the business altogether.

Once you have agreed upon a rate and the other specifics you need to tell the dealer where you want the money to go and at what date.  If it is a future date then you might be given the option to fix the rate at today’s rate or take what is on offer on the actual day of transfer.  This is entirely up to you although it is worth getting some advice from your dealer on whether rates are likely to go for or against you on the future.

Finally, you will usually be required to sign and return a conformation form (the legally binding contract) and this can normally be completed by email or fax.

If you have any questions on anything mentioned above, please do not hesitate to get in touch.

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