An Inside Look Into Currency Brokers In The UK: What Are They And How Do They Operate?
There is always something more you could be doing to improve the future prospects of your business. Numerous business owners are turning to brokers for that extra piece of guidance that can make all the difference. Financial brokers can offer a helping hand in organising your finances by providing the necessary skills, advice and contacts required to structure the ideal financial framework for your business. On the other hand, energy brokers ensure that your business gets fair pricing for its energy needs by comparing rates and potential contracts from suppliers, and even negotiating on your behalf.
In this article, however, we are focusing on a different type of broker: the one which specialises in international money transfer and exchange rates. As per MoneyTransferComparison’s best brokers list , there are over 100 “currency brokers” in operation in the United Kingdom the majority of which are based in London, itself being the financial capital of Europe. In what follows, we take a deeper look into what currency brokers are, how they work, how they make money, and much more.
If you would like to read more information or learn more about invoice factoring, you can do so here.
What are Currency Brokers?
Currency brokers are financial services companies that provide businesses access to a platform for buying and selling foreign currencies. As a whole, they can have a multitude of different services and/or functions, including, but not limited to, overseas payments, the ability to receive funds from abroad, exchanging FX between owned accounts, and even the possibility to receive regular expert guidance.
Currency brokers can be described as an alternative to the concept of a traditional bank. To put their objective in simple terms, it is to offer a service that provides added value to businesses that want to exchange currencies and/or transfer money abroad to a bank account in a foreign country.
Brokers provide a variety of hedging solutions, which are in turn supported by a group of currency exchange experts who offer guidance to customers as they manoeuvre through the array of potential hedging strategies and hedging solutions. The main attraction of this service is that it is generally offered at a lower price when compared to the same service at a traditional bank.
How Do Currency Brokers Work?
When people first discover that currency brokers offer better exchange rates than traditional banks, there is always one simple question that jumps to the tip of their tongue, “how do they do it?”
Whereas traditional banks offer a large variety of services, you can think of currency brokers as specialists in international money transfers. As a direct result of this, currency brokers have fewer overheads than traditional banks. Moreover, they are aware of the fact that if they don’t charge inordinate markups, they can still make a substantial profit.
In summary, when currency brokers buy currencies in large volumes from banks, they do so at a huge discount when compared to if you did it yourself. Additionally, they have multiple bank accounts all over the world and are therefore able to offer businesses a lower foreign exchange rate when making payments. Of course, all of their bank accounts have met all of the regulatory needs in all of the countries in which they have bank accounts, making life easy and providing peace of mind when transferring large amounts overseas or receiving money from abroad.
As previously mentioned, at any given point in time, there are more than 100 active currency brokerages across the United Kingdom. While brokers have the ability to make running a business easier, it can also prove helpful to have some guidance when choosing which broker is ideal for your needs.
Are Currency Brokers Essential?
Currency brokerages originated out of necessity as businesses – and individuals from the late 90s onwards – were paying high bank fees for carrying out international transfers. In addition, individuals with properties overseas and ex-pats who sent money to support their families were burdened with unnecessary fees.
Nowadays, due to the rise of the internet, international transactions are significantly more commonplace. For instance, when you operate a business in the United Kingdom, your market is not restricted to the island of Great Britain, but instead, it is open to the entire world. This means that you no longer just have to know how to organise your operations with the United Kingdom in mind, instead, you need to expand your business strategy overseas. This can be true both in terms of sourcing materials and in selling your products and/or services abroad.
Once again, this is a development that has created an environment in which brokers have changed how businesses are choosing to operate. While the concept of sourcing materials and selling products abroad is not necessarily new, the digital age has resulted in more and more businesses moving away from traditional banks in order to complete these transactions. While a traditional bank will typically charge between 15 to 27 GBP (sterling pound) per international transfer (2% to 5%), currency brokers tend to offer more competitive rates.
How Do Currency Brokers Make Money?
Having a clear understanding of how currency brokers make their money is fundamental before making a deposit. This, in turn, will help businesses and private individuals to get a grasp of which entity to trust and how their money will be handled.
Firstly, a currency broker may be compensated through the bid-ask spread of a currency pair. The “bid price” refers to the price quoted for selling a currency pair while the “ask price” is the price quoted for buying a currency pair.
A “spread” – yet another important term – is the difference between the bid and ask price, and the cut that the currency broker will take. For example, when the EUR-USD pair (euro-American dollar) is advertised by a currency broker as a 1.20010 bid and 1.20022 ask, the spread between these two prices is .00012. The broker will then collect that spread amount.
Secondly, a currency broker may charge its customers a transactional fee or a monthly fee for accessing a particular software interface.
Certain currency brokers, however, might make a profit by charging customers more than what a bank would usually charge them. Big money transfer brands such as Wise, formerly known as Transferwise, would likely pay as little as 0.01% of 0.02% on its own currency exchange rates, whilst a small brokerage would pay more and/or pay a significant portion of its revenue to a third-party provider.
Currency brokers who use services such as Currency Cloud, for example, would have to pay an amount between 30% and 50%. To put this matter into perspective, if a currency broker which charges a business 0.3% of a £10,000 transfer must split its earnings in half with a third party, they would be seeing a profit of just £15.
Compare UK Currency Brokers in 2024
As per recent data and customer reviews, the following are the best currency brokerages in the United Kingdom.
An industry leader with the biggest number of offices worldwide, Currency Direct specialises in international money transfers and virtual transfers. It offers multi-currency accounts and excellent customer service. Its online platform is, however, less intuitive than similar providers.
Boasting expertise in corporate FX and large international transfers, TorFX is one of the industry’s veterans. Whilst known for its professional traders and continuous growth, its mobile app can be slightly laggy.
Operating since 1979, Moneycorp has no fixed fees per transfer and offers numerous complimentary services, including multi-currency accounts and FX hedging.
Global Reach Group
A convenient option for both business and private clients, Global Reach is known as one of the fastest and most straightforward providers in the industry. Unlike its competitors, it does not offer multicurrency accounts.
While smaller and lesser known, Currency Solution is one of the best-rated providers in the industry known for its quality services. It is, however, limited by a lack of a mobile app and a high minimum transfer size.
Ideal for businesses that favour smooth online platforms. Halo Finance offers several services, including business FX and hedging, but it isn’t as large as its competitors.
Yet another industry giant, OFX offers virtual bank accounts in the UK, USA, Australia, Hong Kong and New Zealand. Unlike some of its competitors, OFX is less tech-savvy.
Whilst not technically a currency broker, Wise is a service that allows users to transfer money to bank accounts abroad or another Wise account. It might not be an ideal option for large transfers or for those looking for flexibility in margins.
Launched in 2018, Spartan FX is a newcomer to the currency brokerage space. The small-scale operation is run but an experienced team and has both an offline and online trading process.
A medium-sized currency transfer company, CurrencyUK offers an efficient and straightforward approach. Despite this, customers might encounter high fees on small transfers.
The Bottom Line
The business landscape in the United Kingdom has changed drastically over the last three decades as a direct result of the digital age. With more and more business owners moving away from traditional banking methods, currency brokers are now paving the way for more competitive exchange rates, low or no transfer fees, and faster transfer times. Whether you are just starting out or already running an established business, the aforementioned brokers have a role to play in the future of the modern business landscape.
Other Useful links from our knowledge centre:
How to Start a Life Coaching Business Without Breaking the Bank | Compare Your Business Costs
7 Things You Should Know Before Starting A Business | Compare Your Business Costs
A Novice’s Guide to Finding the Right Host to Power Your Website | Compare Your Business Costs
Remember to Compare Your Business Costs is here to help your business every step of the way, from business advice or saving you time and money on your business purchases such as: