Foreign Exchange Margins, Commission and Fees

It is difficult to provide definitive information on foreign exchange fees and margins as these will vary between the various foreign exchange brokers, however the majority of foreign exchange providers will typically remain within the following thresholds.

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Foreign Exchange Fees

  • Transfers > £3,000 – Fee Free
  • Transfers < £3,000 – Fees typically range from £5 – £15 per transfer

Certain providers may promote that they do not charge foreign exchange fees which could be due to:

  • The minimum currency transfer accepted is £3,000 – £5,000
  • They incorporate foreign exchange fees in to their margins, thereby offering a worse exchange rate

Foreign Exchange Margins

Foreign exchange brokers and banks make money on the margins they take from each transfer they process regardless of whether it is a spot contract, forward contract, market order or regular international payment.

A foreign exchange margin is the difference between the exchange rate the foreign exchange broker can buy at and the exchange rate they offer to their clients. Each foreign exchange provider and high street bank has the flexibility to charge any margin they wish, which typically varies between 0.2% and 4% depending on the company and the size of the transaction.

High street banks typically charge a margin of between 2% – 4% and will usually charge a fee of between £20 – £40 for each international money transfer depending on the transaction size.

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Foreign exchange brokers typically charge a margin of between 0.2% and 1.2% depending on transaction size, and may or may not charge a foreign exchange fee (see the section on Fees for more information).  Foreign exchange providers are generally more open to negotiating on foreign exchange rates and fees to ensure they win the clients business, however, beware of a broker offering exchange rates close to the interbank price.

You have to question why they are willing to process a transaction which will not make them any profit, and secondly if you have the potential to be a repeat customer the foreign exchange broker may start widening their foreign exchange margins in the future to ensure they make a profit overall.

Bank vs Broker Foreign exchange fees

Most high street banks will charge between £10 and £40 of
currency equivalent to make an international payment on your or a businesses behalf. Foreign exchange brokers by and large wont charge a transfer fee to send your money overseas. In many cases they will also absorb any fees which could be incurred by the beneficiary bank. These will typically only occur on payments outside of the SEPA zone.

Bank vs Broker Foreign exchange margin

When compared to highstreet banks, there are huge savings on the
rates offered by Foreign exchange brokers. As an indication there are savings of between 2-4% on the margins charged by banks on offer from foreign exchange brokers, meaning a potential saving of £1000 to £2000 on a transfer of £50,000.

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Savings on foreign exchange fees and margins

Foreign exchange brokers can offer significant savings on both fees and margins applied to foreign exchange brokers.

If your business is making regular or multiple currency transfers which total £2,500,000 over the year. Assuming your foreign exchange broker can save you 0.5% on the margin applied to your transfer an annual saving of £12,500 can be made. Supplementary to this if you eliminate a £20 transfer fee there is an additional annualised saving of £240 meaning £12740 can be added to your bottom line.

Foreign Exchange Terminology

  • Interbank rate – the rate at which international banks trade between each other.  When looking at currency converters on any website, the exchange rate will typically be interbank or mid-market rates.  It is important to understand that a consumer will not be able to trade at interbank rates so exchange rates on currency converters and similar websites should be for information purposes only.
  • Wholesale rate – the exchange rate foreign exchange brokers can obtain from their banks or counter parties, the more the foreign exchange broker trades the better wholesale exchange rate they will receive or the tighter the margin they will be offered by their counter party.
  • Customer rate – the exchange rate and foreign exchange broker will offer to their clients.  The closer the exchange rate is to the interbank rate, the tighter the margin, the better the exchange rate, the more monetary value the client will receive.
  • Margin – the difference between the wholesale rate and the customer rate.  The margin is the foreign exchange broker’s gross profit on the transaction.
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