Currency brokers are companies that buy and sell currencies. It would be extremely inconvenient for people to find someone looking to sell them currency, or swap, in the exact amounts that they require. So instead, we head to a brokerage that acts as an intermediary.
Currency brokers are specialists in buying and selling currency. Unlike banks, this is their primary source of income. This has led to an incredible efficiency within the operations of FX (foreign exchange) brokers, where it’s much easier and cheaper to handle currency than with a high street bank.
They don’t rely on the systems of money transfer that banks do (i.e. SWIFT), though they do use these if they need to. Currency brokers have been on the rise for a number of years now. Whilst they have existed for decades, being popular among large multinational companies, they’re now accessible by pretty much everyone.
Generally, the thrust of the new signups over the pandemic has been small to medium-sized enterprises. Many small business owners have been forced online, be it for sales, production, or management solutions.
Lockdowns have meant that not only is selling online needed but so is hiring workers online, in the event that their physical office space was interrupted.
This trend continues beyond the pandemic, though, and now that tourism is opening back up, many expats and travellers also use currency brokers to benefit from cheap rates.
Which are the best currency brokers in the UK?
The best currency brokers currently are considered to be: Currencies Direct, TorFX, Global Reach, OFX, and MoneyCorp. These firms, among others, reliably offer lower fees than traditional banks. Most do not have fees and have a margin of around 1% or under. Or, if there are fees, then the customer is likely receiving the interbank rate – the currency rates that are considered ‘true’.
Over the past decade, currency brokers have worked hard to innovate beyond the legacy systems that have suffocated banks. Slick mobile apps, bill splitting abilities, hedging, over-the-phone advice, and instant transfers overseas.
Is British Startup Wise a currency broker?
Wise, formerly known as TransferWise, is a British unicorn company that is valued at over £10 billion despite being founded only 11 years ago. Getting its name for its wild marketing stunts and fast growth, whether Wise is a currency broker or not is an important question.
The answer is yes, it is a UK currency broker. Though, it’s important to point out that Wise, like Revolut, operates very differently from many other known currency brokers. This is because their use-case is different. Currency brokers are traditionally quite hands-on, like a solutions firm or consultancy.
This means that with brokers like OFX, you can ring up and discuss your situation with a dedicated dealer. Purchasing an overseas property? They have a department of expertises for this exact scenario. They’re able to facilitate sophisticated hedging products and exchange large amounts of currency.
Trying to do this with Wise wouldn’t last very long. They don’t have phone support, and the live chat is very limited. With no dedicated dealer and no hedging products, it may be a wonder why anyone would use Wise?
Well, many people aren’t investors of overseas property or businesses looking to hedge against their exposure to the US Dollar. Some people are looking to go on holiday to Malta and exchange spending money for Euros, or perhaps a sole tradership wants to hire a freelancer who only accepts USD as payment.
This may be a more limited use-case for Wise, but it’s an incredibly common one. Being a lot less specialist, Wise does not need as much phone support, as users are happy to one-tap exchange funds on the slick app.
Do people need a currency broker during the pandemic?
The pandemic has resulted in restricted travel, so spending money abroad is certainly less necessary in current times. However, not only are borders opening back up, but there are plenty of other reasons why people need a currency broker.
Putting aside businesses, there is simply a need for consumers. Many people buy goods on the internet, so why not pay in the seller’s domestic currency when buying a good? For example, Shopify stores – which are increasing into the millions – are often overseas sellers that are happy to ship to you.
But, instead of paying in Pounds as a British buyer, we could exchange the money to CAD, if the seller is Canadian. This way, we can exchange for cheap and pay for the true price of the product. This way, we do not pay the Pound-version of the price, which is often more expensive because of the inefficient and expensive currency conversion within the Shopify and/or MasterCard system.
For example, Amazon often charges a 3%+ exchange rate margin. Whilst this is mostly a problem for sellers and not buyers, it’s evidence that people should exchange money on their own terms as much as possible.
Multi-currency accounts and who is offering them
A brilliant feature of many currency brokers, particularly the ones targeting convenience like Wise and Revolut (though most offer this) is multi-currency accounts. So, it’s not only a place to send Pounds to a Canadian seller in a cheap way, but it’s a way to hold both a GBP and a CAD account – plus 30 others from around the world, each with their own virtual bank account details.
This makes receiving money extremely easy. As an online seller or freelancer, money can be received in various currencies and the pots all remain separate. This affords the user of time – they can exchange the money at a time they wish to, perhaps when the markets are preferable.
Some well-known brokers that offer multi-currency accounts are:
- World First
- OFX
- MoneyCorp
- Wise
- Revolut
It’s important to note if the company has this feature, as not all do.
Being able to open a US bank account, which is technically impossible for a foreigner to do remotely when it comes to high street ‘proper’ banks, is extremely useful. For example, Upwork is known to charge freelancers a fee and poor exchange rate when withdrawing money in the account (USD) to the freelancer’s bank account (non-USD).
However, having a US bank account – be it a virtual one or otherwise – means funds can be withdrawn in USD, thus avoiding the fees and poor exchange rate. From here, the USD can be exchanged whenever the freelancer wants to (or not) for close to the interbank rate.
Can you sign up with a currency broker?
Signing up to a currency broker is a lot easier than with a bank. Anyone can sign up, and other than taking a picture of a driving license and perhaps a selfie, the security process is totally digital and often approved very quickly. Most are free to use too, meaning one person may have accounts at five different brokers, and simply use different ones depending on the scenario.
Furthermore, companies like Wise will send a debit card in the post for free. This means users can use the card abroad at ATMs or with local merchants, spending the funds on their multi-currency wallet for an incredible rate. To have the account and the card for free is extremely tough competition for high street banks, which are struggling to offer comparable value.
