What is a Currency broker, and how can it help you?
When you think of currency trading, forex is usually what comes to mind.
But, currency trading also means currency exchange — it encompasses all activity with exchanging currencies.
While forex trading is the act of speculatively buying and selling currencies for profit, currency trading through a broker can mean the opposite — it’s a way to reduce the risk of speculating currency movements, and instead exchange currency in a safe, low-cost, and non-speculative way.
How currency brokers operate
Currency brokers act as intermediaries in the currency market, meaning they help facilitate transactions for clients. By providing access to a platform of exchange, they broker deals between buyers and sellers to ensure safe transactions between currencies.
However, these transactions are usually for business or long-term needs. The transactions aren’t high-frequency or rapid, unlike forex brokers. Instead, they offer services like international transfers and hedging. They will be on the other end of the phone offering advice, and deals can be brokered this way for a more bespoke service.
Currency brokers earn money in two main ways: spreads and fees. The spread is the difference between the buy and sell price, or rather, the difference between the customer’s exchange rate and the interbanking exchange rate. Sometimes there are flat fees too, such as charging $8 for an international transfer.
Who are the top currency brokers?
London is home to many of the largest currency brokers, due to the networking effect of the city and its reputable legal framework. Due to the international nature of currency operations, many of the top international brokers still accept American customers.
OFX is one of the most reputable currency brokers for example, yet is Australian, while XE is Canadian-based but accepts customers from around the world. Currencies Direct and MoneyCorp are two big hitters that are based in the UK.
When it comes to top currency brokers, they tend to have many offices around the world to ensure a high quality of service for all customers. This can tap into local market knowledge which is difficult without a physical presence. For example, the Australian-based OFX has a particular strength when it comes to pairing Western currencies with Asian currencies.
Beyond just offering the lowest rates, local knowledge shines a light on the other things that a currency broker brings to the table. Many are experts in buying overseas properties and the obstacles that you need to hurdle, whilst others focus on business solutions like regular supplier payments and even multi-currency treasury services and audits.
How to get the best rate with a broker
The way that we now consume these services (remotely, digitally, and across borders) has led to a competitive global market. The benefit of this for customers is that it's a buyer’s market - global companies are competing to increase their customer base, while customers have tens, if not hundreds of options at their disposal.
This is important because brokers are brokering - they’re not usually selling a fixed product. They’re open to negotiation, and prices can be haggled.
One tactic is to make transactions in bulk. This increased volume gives you more leverage, and the spread will likely become more favourable. Plus, the fixed fee (if there is one) will become a smaller percentage of the overall transaction amount.
Beyond just haggling, choose your company based on the service you are looking for. For example, choosing companies that are specialists in the region or product that you’re interested in.
While switching between brokers can help you get the best deal on an ad-hoc basis, long-term relationships can often be valued by brokers. It may not be a good idea to stick with just one company for all your needs, but building loyalty with a handful can pay off down the line.
Value for businesses to use a broker over a bank
Unless you’re a very large company, banks will not be open to negotiation. Brokering currencies and international transactions aren’t where their focus or specialities lie. As a result, they’re very expensive, slow, and limited in products.
One key area in which brokers can help businesses is through hedging. This is a method of mitigating currency risk by locking in a price today for future transactions. This is an effective way of forecasting future cash flow and ensuring you’re not going to be overpaying your suppliers via a weakening of local currency.
The bespoke pricing is far cheaper than banks, but the personalized support is perhaps even more valuable when dealing with international trade. It’s not just the dedicated account manager who will be on-hand when advice is needed, most brokers are more in tune with UX and new technology. For example, real-time market insights, transaction updates, and reacting more quickly to market changes.
Final Word
Currency brokers are a far cry from forex brokers - they’re about minimizing currency costs and risk, not exposing yourself to it via speculative trading. A broker, unlike a bank, can negotiate deals with personalized services. This is a powerful, free asset for businesses, but it’s also accessible to expats, investors, and remote workers.
