Ask the expert ?

Posted 15 September 2009 at 15:49

Posted in Ask the expert?

I keep reading that currency brokers will always offer better exchange rates than high street banks. Assuming this is true, I don't understand how brokers can always beat the banks and continue to stay in business? Mick Dylan, Surrey.

This is your classic bank versus broker question which actually crops up more often than you can imagine. It comes up so frequently because the public has a difficult time comprehending how it is possible for smaller financial institutions to out price and out provide large conventional institutions. Why is it that when it comes to financial services and money related transactions, the bank is usually the first port of call? More than likely, this is down to convenience or lack of awareness or a combination of both. One could probably argue that people don't like the idea of change because they are worried that it may be accompanied by drawbacks and discomfort. The first step toward change is awareness. The second step is acceptance.

Brokers exist in various markets because they have found a better, faster and more cost effective way to do things. It's all about finding an alternative route. For example when you consider currency buying, foreign exchange brokers have much lower operating costs and act on behalf of thousands of individuals carrying out similar transactions. It is this collective volume that gives them buying power, direct market access and clout with the banks. Their cost savings are then passed onto their clients through better exchange rates.

In today's economic climate it's all about service and price and it often pays to shop around. When buying or selling a property abroad you should always consider and investigate alternative routes for carrying out your transactions. The obvious default option is the bank; however this is often not the most cost effective way. In fact you may even be surprised to learn that alternatives could save you thousands.

So what is it that makes brokers better than banks? Well, brokers are often better positioned because they have a very good understanding of their own business and tend to specialise in the market that they operate in. Most brokers have also developed a variety of specialised industry related contracts and products which allow them to cater for individual circumstances.

When it comes to foreign exchange and the foreign exchange market it is important to remember that this is a specialised market because it is unique and unlike any other financial market.Exchange rates fluctuate continuously and can move a large amount in a short period of time and every time the exchange rates changes so will the cost of your overseas purchase.