5 Questions To Ask Your Foreign Exchange Provider

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14/12/2016 1:23 pm

Many businesses continue to pay too much when it comes to foreign exchange. A lack of transparency by the major providers combined with specialised knowledge provides fertile ground for overcharging.

Understanding whether you are using the right foreign exchange provider can be confusing. Most people are unfamiliar with how the sector truly operates and many businesses fall back to the familiarity and perceived safety of dealing with their bank. At the end of the day, we all know that our bank will operate in our best interests won’t they?

We believe that businesses are entitled to make profit - but there is a difference between making a profit and over-charging. Transparency is the key to understanding whether you are receiving the optimal margin on your FX transactions.

Here are five questions you should ask your current FX provider to gauge the state of play for your foreign exchange. If you are not happy with the answers, please get in touch with us.

  1. What margin am I currently paying?
    Do you even know this yourself? The overwhelming majority of businesses we deal with tell us that they are getting a ‘good FX rate’. Yet, the overriding majority have no idea what margin they are currently paying through their current provider.
    If you receive a clear answer it will most likely be along the lines of “Well that depends on the market”. The reality is has absolutely nothing to do with the market and everything to do with how much the provider believes they can get away with charging.
    Until now, foreign exchange has never been transparent in the margins that are being charged on trades. The reason is simple. It is not in the interests of the FX providers to tell you what rate they are giving you so they can maximise their profitability on each trade.
  2. Will my margin rate remain capped over time?
    You may negotiate a capped margin with your provider. While this seems like an excellent idea, unless your provider is willing to transparently report the margin charged on each FX trade how will you be able to hold them accountable?
    While many businesses shop around each and every time, it is difficult to be assured of the margin being applied without a lot of effort. On top of this, some providers charge transaction fees and add them in with the margin that is charged. You can achieve a high degree of surety by choosing a provider who is transparent with the marginand transaction fees that they charge.
  3. Are your dealers or your account manager on commission or salary?
    This simple question is critical for one very important reason - Conflict of Interest. If the person who transacts your FX trades is on commission then by definition their goal is to charge you as much as possible so that their commission is maximised. Equally if the account manager with your provider is on commission then any advice given is highly likely to be framed in terms of maximising their commission.
  4. Who has custody of my funds during a transaction?
    In the cases of non-bank providers, simply ask do you have custody of my funds and what happens in the event that there is another GFC-style meltdown, are my funds safe? As long as the custody of the funds are held with a Tier 1 Australian banking institution then your funds are safe.
  5. What transaction fees am I paying for each transaction?
    Some companies including banks will charge fixed transaction fees. This can become very expensive if you regularly trade small FX transactions.

Foreign exchange for business can be confusing even for seasoned finance professionals. Specialised knowledge and a lack of transparency from providers makes this category ripe for overcharging. If you do not have clarity from the answers given by your provider after asking the questions above it is likely that you are paying more than you should.
Supply Clusters aim to help businesses make the right buying decisions. We do the due diligence on each expense category and we partner with organisations who are prepared to offer what we believe is the right approach to each category. For foreign exchange, transparency is the key differentiator. This is why we have partnered with HiFX who offer members low capped rates as well as no transaction fees.
If you do not get transparency from your current provider or would like to find out more, read a little more here or contact us using the form below.


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