By Jon Ostler, CEO Finder.com
As a small or medium sized business, there are many reasons why you may find yourself in need of transferring money abroad. You might have purchased something overseas, or perhaps you need to pay a remote worker. Whatever the reason, a little forward planning can save you and your recipient a significant amount of money.
Your bank may seem like the easiest and safest option, however, it’s usually the most expensive too. For instance, on March 23 2017, a transfer of £10,000 to Euros would have become €11,157.17 if carried out with a high street bank, or €11,530.35 with a forex specialist - saving €373.18 overall.
There are plenty of international money transfer specialists out there which are safe to use and can make these savings available to you. However, even amongst these, prices can vary. Take, for instance, a transfer of £10,000 to Euros. At the time of writing, Forex Specialist 1 offer an exchange rate of 1.145 Euros to the pound, resulting in €11,445. On the same transaction, Forex Specialist 2 advertise an exchange rate of 1.155 Euros per pound, meaning €11,547 would be sent to the recipient. Although the difference between the exchange rates seems so small, going with the second provider would save you €102. This is why it’s so important to compare providers.
If you need to make a payment abroad in the future, but you’re worried the recipient’s currency will increase in price before then, you could enter into a forward contract. This is where you agree to make the transfer at a predetermined date, at the current exchange rate.
Some suppliers also offer options contracts for a small fee. These are similar to forward contracts only they give you no obligation to complete the transfer at the contract’s expiry date. If the exchange rate at a time in future is preferable to the one agreed upon in the contract, you can still benefit.
This is an excellent tactic if the transfer date is flexible. In a limit order, you set a target exchange rate at which you want the money to be transferred. If you predict your end currency will become cheaper in the future, you can arrange for the transaction to occur automatically once it does.
A stop-loss order protects you from large increases in the currency value. Here you set a lower limit for the exchange rate at which you’d like the transaction to occur. This way if the rate falls, you limit your losses, as your transfer will be carried out before it falls further.
By placing a limit order and a stop-loss order for a single transaction, you’ll stand to benefit should the exchange rate increase, while effectively managing your risks.