How to Take the Risks out of International Money Transfers

The following is a guest post about international money transfers. If interested in submitting a guest post, please read my guest post policy and then contact me.

Financial exchange can be risky, especially when a person has been out of the market for several months or years. With constant fluctuation, making a transfer without proper market knowledge is a great risk for any individual or SME.

Quite often, investors will use banks to transfer their money around the globe, though this often comes at a cost of around £35-£55, depending on the bank.

Due to this, many people also use currency exchange brokers, who instead of charging a large flat fee, will take a small percentage out of a transaction that will be far less than the original bank fee.

Once that a person has found a broker or bank that they trust, they must also find what type of transfer that will suit them.

So what kinds of transfers are there in financial exchange?

Spot Rate

A spot rate is quite probably the most popular financial exchange on the market. This is where the price of the exchange is agreed upon by the two parties for immediate settlement on a particular currency.

The spot rate will usually be at or very close to the current market rate, as the transaction will occur in real time. Some analysts argue that forward rates are good indicator of the health of future spot rates, though this is disputed.

Spot rates are usually used by individuals or businesses who need to exchange their currency as soon as possible.

Forward Contract

A forward contract is a customised contract between two parties to set a specified exchange price on a future date.

This is particularly useful for individuals or businesses who believe that the current exchange rate will be better than the one when they need to make the transaction.

The risk here involves the market changing in ways that the investor did not predict and therefore loss may occur as a result of the transaction.

Limit Order

A limit order is similar to a forward contract, though instead of using the current spot rate, an investor will specify a rate and wait until it has been reached for the transaction to complete.

This is particularly useful for those who can afford to wait for the right rate to be reached. The risk here is the rate never achieving the specified amount given by the investor. Additionally many brokers will also insist on a minimum transfer amount, which may be higher than many individuals or SMEs can afford (Lloyds Bank for example, sets this at £100,000 or the currency equivalent).

Picking the right broker

Picking the right broker is important so that you can get the best deal for you or your business. Be on the lookout for a broker that will not charge you a fee, offers total transparency and gives you the opportunity to view rates on an electronic platform (as some only do business on the phone).

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