Market Insights

How to Get the Best Exchange Rates for Business FX Transactions

FX brokers looking at transactions

When it comes to handling transfers of money to and from foreign countries for business purposes, companies that need to do so are always looking to make sure that they are getting a good service. This article will explore ways of finding the best prices and what else businesses should look for when arranging international money transfers.

We will focus on exchange rates for immediate transfers of money between different currencies with spot trades. However, we will also explain how to compare the rates offered for other types of transfer, such as forward trades and option trades. On top of this, we will explain what other things should be taken into consideration.

Where to Get the Best Business Exchange Rates

Generally speaking, the best exchange rates for business transfers between different currencies are obtained from currency brokers and online platforms which offer similar services to currency brokers.

Banks are able to offer currency exchanges and transfers, however, the best rates are normally provided by currency brokers and online platforms. While this has been the case for some time, one survey in 2016 found that almost a quarter of UK-based companies are unaware that there are alternatives to using banks. The fees which banks charge are often high and significant amounts of money can usually be saved by using currency brokers and online platforms instead.

Exchange Rates for Immediate Transfers (Spot Trades)

The preferred currency exchange service for immediate transfers, which are known as spot trades, is usually the one with the lowest cost.

It is usually relatively simple to compare the different rates that are on offer. Most currency brokers include their fees within the exchange rate that they offer. As such, for most immediate currency transfers it is simply a case of comparing the exchange rates which are offered for spot trades.

Be careful, though, to check whether or not there are any additional fees. While most currency brokers or online platforms do not charge additional fees, some do. Some extra services, such as same or next day transfers more often come with additional fees.  

The currency exchange industry is competitive, and prices constantly shift. In some instances, a company that has the best rate one day may not have the best rate the next.

Other Things to Consider

While the cost is important, there are other things to consider. In such a competitive industry, it is often important to look for more than just a good price as good prices are widely available. The following considerations are something that should be taken into account for any time that a currency transfer is needed, not just for spot trades.

Other key things to look for are:

  • FCA regulation – It is essential to make sure that the company you use is regulated by the FCA. You should not risk placing your funds in the hands of a company that does not follow regulations set out by the FCA.
  • Transparency – Companies which act with complete transparency about their fees and about how they handle transactions are more trustworthy than companies that do not.
  • Transfer speed – If you need to complete a quick transfer it is worth checking that the company is able to do so.
  • Currency availability – If you need access to an unusual currency it is worth checking that the company is able to provide this.
  • Reputation – It is always a good idea to check the reputation of the company that you use. Again, this will help to ensure that your funds are in safe hands and that you will receive a good service.
  • Additional services – As we will explain shortly, it may be beneficial to take advantage of additional services, such as forward or option trades (which are used to eliminate the risk presented by exchange rate fluctuations) when transferring money.  
  • Technological assistance – Technology has helped to make currency transfer easier to manage. For many businesses which handle transactions in foreign currencies, particularly those which handle a large number, this can be helpful. Online platforms usually offer the most advanced technical assistance and can often be immediately integrated with a company’s accounting system. This provides instant and simple management of international transactions.

What About FX Hedging?

As we just mentioned, many currency brokers and online platforms are able to offer additional services, and one additional service which is often offered is FX hedging. FX hedging refers to agreements that transfer and currency exchange service providers can offer to eliminate the risk that companies that trade in foreign currencies face from fluctuations in the exchange rate.

It may be worth considering whether you should use an online platform or currency broker which provides FX hedging services like forward and option trades.

What are Forward and Option Trades?

The risk that companies that trade in foreign currencies face from exchange rate changes is known as currency risk. Forward and option trades provide a way of avoiding this risk.

Forward Trades

With a forward trade, a company that is set to complete a transaction in a foreign currency can set the exchange rate that it receives at a future date. They simply agree on the rate at which they will exchange currency, the amount, and a date by which the exchange will be settled. When the time comes to complete the transaction, any changes to spot exchange rates will not have an effect.

For companies that frequently complete transactions in foreign currencies, such as to order materials or to pay foreign staff, regular use of forward contracts is often used to provide certainty about cash flows.

Option Trades

With a forward trade, there is a commitment made to complete the exchange of currencies once it has been agreed to. This is where option trades come in. With an option trade, there is no such commitment.

This makes them useful mainly because when there are advantageous changes to the exchange rate between the time the option trade is taken out and the transaction takes place, this can be taken advantage of. If the exchange rate happens to have moved favourably when it is time to complete a transaction, the company can disregard the option trade and take a spot trade instead. They will benefit as a result.

Again, option trades are often used by companies that frequently handle foreign exchange transactions.

How to Compare Offers?

Usually, it is necessary to get a quote in order to compare prices for forward and option trades between different brokers or platforms. The process of receiving a quote is usually relatively simple and can be done via email.  

What Offers Will I Receive?

When you receive an offer for a forward trade, you will receive what it known as a forward rate. This will be different from the current spot rate. Sometimes people assume that the adjustment has been made to give profit to the provider of the trade. The adjustment is actually made to take into account the effect that interest rates have on the comparative value of currencies. While the provider of the trade does take a profit, this is factored into the exchange rate in the same way as it is with a spot trade.

With an option trade, there will usually be an offer for a premium, which must be paid upfront, and an exchange rate as well. The premium is the one-off fee that needs to be paid in advance to take the option trade. The exchange rate is calculated in much the same way as a forward rate.

What Do Bound Offer?

Bound provides an online platform that offers spot trades at very competitive rates. We also specialise in providing FX hedging through forward and option trades.

The Bound platform aims to provide the simplest and most convenient way of carrying out currency exchange for business. Spot trades, forward trades, and option trades can all be completed in a matter of minutes on the Bound platform. The aim is to make life easy for businesses that deal in foreign currencies.

The platform can be fully integrated with commonly used accounting software, such as QuickBooks or FreshBooks and setup is easy. While complete newcomers to currency exchange and FX hedging may struggle at first with the Bound platform, it will turn out to be very convenient. For those who are more experienced and understand their FX requirements better, Bound should provide a new level of simplicity.

On top of this, Bound is FCA regulated, operates with total transparency, can access any currency, and provide quick and convenient money transfer services.

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