Back in 2005, I was relatively early in becoming part of the online gig economy. Although now it seems like everyone is earning money by working for themselves online, a decade and a half ago, the term had never even been used in this context. While being early may have many benefits, including the fact that there was far less competition back then, it also meant I did not have the resources available to freelancers in 2020.
In particular, whereas freelancers today have multiple ways of getting paid by clients around the globe, I had very few options – and none of them were geared towards my benefit.
In 2005, I was working for clients around the world, but the infrastructure to receive payments was severely lacking. Yes, people have been sending currency overseas for over a century. And yet, foreign currency transfers still cost a fortune to both sender and receiver, took ages to get into your account, and came with some serious hidden costs.
In some ways, none of this has changed. Using SWIFT with big banks comes with similar costs and still takes a few days. Furthermore, they generally give you the least beneficial exchange rate they can justify, which is essentially just an added fee.
However, there are now a number of excellent Forex currency brokers who provide good alternatives. Companies such as Moneycorp, Currencies Direct, and Global Reach help thousands of individuals and SMEs in the UK.
Using one of these brokers over a traditional bank or a service such as PayPal will save you money. We’ll go into the details of how they save you money (while functioning as profitable businesses) as well as why it may be a good idea to use a number of these brokers, rather than settling on a favourite.
How Can Currency Brokers Save You Money?
Currency brokers save you money in a number of ways. The most basic way they save you money is in the fees they charge. Basically, the best UK currency brokers charge only a small percentage in fees. This may sound too good to be true, but currency brokers still manage to function as successful businesses, which we will go into.
But it is not in the fees where currency brokers save you money. Rather, the main benefit is that they always give you a good exchange rate. Whereas banks will give you an exchange rate that is far from the mid-market rate, currency brokers are much more fair with what they offer.
There are also no intermediary fees which many banks charge. Often, these charges are applied on both the sender’s and the receiver’s side.
Aside from the obvious ways they save you money, with low fees and no hidden charges, you also save money with special features offered by currency brokers. One such feature is the ability to use hedging tools. Hedging tools for Forex include options such as “forward contracts”, “stop loss orders”, and “limit orders.”
Hedging essentially works by ensuring your income won’t be impacted negatively by changing exchange rates. While the pound sterling is, most of the time, a relatively stable currency, other currencies are not so lucky. If you are receiving payments from countries around the world, each country’s political situation, economic struggles, and social movements can seriously make a dent in the values you receive.
Hedging tools allow you to fix your exchange rate at a certain value for a specific time period, or provide methods to ensure your currency transfer happens when the rate is ideal for you. They can also help prevent losses when serious crises occur.
These are great selling points that may have you convinced that currency brokers are the way to go. However, chances are you are also suspicious about how they can offer this kind of service while actually making money. It begins to seem like a scam. Without the fees banks charge, how do they provide a costly service while remaining profitable?
There are other ways for currency brokers to make money that don’t involve disadvantaging the customer.
Where Do Currency Brokers Profit?
Foreign currency transfer is not free for currency brokers, so how do they make money? Fees do cover the costs while providing some profit, but most of the profit comes from taking a markup against the interbank rate.
With smaller amounts of money, the margins on the rates provided are higher. You will still get better rates than you would from any bank, even if you do notice slightly bigger margins against the mid-market rate.
On big transfers, however, currency brokers provide much lower margins. This is a great benefit for the individuals or businesses making the foreign currency transfers, and because of the scale, the brokers still make big profits. Their strategies bring in a lot of big business because the big banks can’t (or don’t care to) compete on this level. Ultimately, the banks are profiting from holding your money regardless.
Now that we have a clear understanding of how these currency brokers work, let’s look at whether you should sign up with multiple currency brokers.
Should I Use Multiple Currency Brokers?
When using a currency broker, you have far more agency than you would with a bank. Rather than simply accepting the rate they offer, you can negotiate by showing them competing offers.
The easiest way to do this is simply by signing up with multiple currency brokers. This way, you can always have a number of offers at hand, and they will compete with each other. The difference in margins may not be particularly big, but at scale can make a major difference.
Using currency brokers is by far a cheaper and more effective way of transferring money than going with the traditional banks. Ideally, you should stay away from SWIFT transfers, which inevitably cost you and the sender, and put a dent in your income.
The best currency brokers are fair and willing to negotiate. Sign up with a number of providers, and you will always get the best rates available.