Are Currency Brokers Really Better Than Banks?

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Resident specialist, Michael Steenkamp, Director at currency exchange specialist FC Exchange, writes exclusively for Homes Overseas.

A hot topic of conversation at the moment has to undoubtedly be “banks versus brokers”. The same question is popping up in just about every financial market from mortgages to currency. Perhaps current economic conditions are forcing people to investigate and consider more cost effective and even alternative ways of doing things.

Personally I think brokers have been outperforming banks when it comes to retail services for a long time. The biggest problem that brokers have always faced is public awareness and perception. After all the man on the street has a hard time getting to grips with the fact that smaller financial institutions can out price, out provide and even out service large conventional institutions.

When it comes to financial services and money related transactions, the bank will always be the first port of call. In reality most people probably use the bank more now as a form of comparison, a sort of yard stick if you like, to try and gauge the going rate before attempting to better it. Don’t make the mistake of thinking that banks don’t control their own market because they do, after all they still hold all of the money, which is a pretty strong position to be in.

When it comes to actually carrying out financial transactions, especially large ones, a lot of people do just end up using the bank. It could be down to convenience or a lack of awareness or in fact a combination of both. Above all of this though, it could just be security.

Like anything, people shy away from the idea of change because they are worried about the uncertainty that comes with it. The first step towards change is awareness. The second step is acceptance.

Foreign exchange brokers can out-perform banks

Brokers exist in various markets because they have found a better, faster and more cost effective way to do things.

Consider foreign exchange brokers, they buy and then sell currency to individuals who need to carry out international transactions. Anyone buying property abroad will immediately tell you how volatile the foreign exchange market is. This market is extremely liquid and very sensitive. A lack of knowledge and a poor understanding of what affects exchange rates is also what makes this market particularly unforgiving.

There are generally two things that most people will realise when looking to buy currency. One is that exchange rates move constantly and the other is that they can move a large amount in a relatively short period of time.

A currency broker basically refers to a company acting as a foreign exchange provider, but going back to the big question, how can currency brokers offer better exchange rates than high street banks?

Well, foreign exchange brokers usually have much lower overheads than banks which obviously reduces their operating costs. To sell currency at a better exchange rate than the bank, a broker first has to be able to buy it at a better exchange rate. Most reputable brokers act on behalf of thousands of individuals carrying out similar transactions. It is this collective volume that gives them buying power and direct market access to better exchange rates.

In today’s economic climate it’s all about service and price, if you are buying or selling a property abroad and need to make large foreign currency transfers you should always consider and investigate alternative routes for carrying out your transactions. Remember, the obvious option of using the bank may not be the most cost effective option.