Foreign Exchange Explained

Travelled back and forth to the UK for the last few months? Check. Found the best location close to the beach? Check. Negotiated the price for your dream property? Check.

Luke Trevail, Senior Trader at TORfx Currency Exchange explains that the final piece of the jigsaw is as important as the first.

foreign exchangeWhen the time comes to finalise on your home abroad, it is easy to be led by your bank – after all they hold all your money or may have even arranged the finance which will soon allow you to start enjoying your long deserved siesta filled afternoons.

But it’s important to realise that there is an alternative to using the bank for moving your money

The economic climate over the last 3 years has dented profit margins and with less mortgages being approved and investors withdrawing their money rather than paying it in, the balance sheets of the banks are looking depressingly bad.

As such, the bank will try and take from the customer by attempting different, previously unexplored angles like making more money on foreign exchange, or telegraphic transfers as they are known in branches.

Independent foreign exchange companies are designed to provide you with a dedicated service and walk you through the process of buying currency and making the most of your money.

Most people are aware of the gradual decline in Sterling since the credit crisis began (can you believe that when people were queuing outside of Northern Rock, the collapse of which was seen as the catalyst behind the eventual slump in our banking sector it was September 2007?) and as such it’s vitally important now, more-than-ever, that your money stretches itself to maximise the return you get.

Most banks simply do not provide you with this guarantee, as the prices they provide are non negotiable and often up to 4% worse than transferring the same amount at the same time while using a company like TORfx.

Once you register your details online with TORfx, (which only takes a few minutes) you are allocated a personal Account Manager who will guide you through the process of buying and selling on the live currency markets.

If you’re a first time trader or an experienced Gordon Gecko it is the Account Manager’s job to assist you in protecting against any risk and trying to maximise your gains.

When you are ready to step into the market and buy currency, make sure you choose a company which is regulated by a recognised body.

There are numerous key words which are worth knowing if you are entering into buying currency, and getting up to speed with these will allow you to discuss your requirement with your Account Manager and may help protect you from fluctuations in the market that no-one can second guess.

Interbank Market

This is the rate of exchange that is accessible to banks that are moving sums of over $5million between one another.

It is the price that can be found online, television or in the paper and is a good point of reference if you want to check the market price.

Most banks will provide you with a price 3-4% different to this rate, where as foreign exchange brokers like TORfx always work at less than 1%.

Spot Order

Spot contracts are ideal if you have all of your funds available and want to make a fast transfer.

You can buy or sell currency for immediate delivery, and benefit from excellent exchange rates.

Forward Contracts

Forward contracts allow you to fix your exchange rate for a future trade, even if you don’t have all of your funds ready.

This option allows you to take advantage of favourable exchange rates up to 2 years before you actually need to send your currency.

You can buy the currency now, and pay later. A 10% deposit is payable at the outset, followed by 90% when the contract matures.

Exchange rates fluctuate constantly and can be difficult to predict, so as well as simply buying at the current rate, we offer the following order types to help you make the most from your transaction.

This is particularly relevant to clients who have a strong view on future exchange rates.

Limit Order

A limit order is an order to buy currency at a pre-determined market level (ie..better than the current rate).

Our dealers monitor your order 24/7 and your currency is purchased automatically when your target level is achieved.

Stop Loss Order

A stop loss order allows you to set a minimum rate at which to buy your currency.

If the market falls to this rate, your currency will be purchased automatically. This gives you peace of mind that you are protected from exchange rate movements.

Some clients use a limit order and stop loss order together, protecting against risk and guaranteeing that the exchange will be within a certain range.

The markets are constantly moving, so our dealers will monitor your orders and keep you informed.

Orders can be adjusted or cancelled at your instruction at any time prior to being fulfilled.

Moving money doesn’t have to be complicated but it does have its pitfalls and risks, so believing in an alternative and taking control of your money is often the best way to ensure that your dream property doesn’t end up costing you the Earth.

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