With the world becoming increasingly globalised, it isn’t any wonder that we find ourselves making international payments more often than we used to. But not all money transfer services are the same, and it can be difficult to understand the differences between one service and the next.

So what are the best money transfer services out there? Well, it really depends on what you want to accomplish. Most services will focus on helping a particular type of customer, so it is useful to think ahead about what you’d like to do, and how often you’d like to do it.

Below, I’ll outline some of the services that I think are best for a particular use. Then, to conclude, I will list all the money transfer services that we have reviewed and include our scores for each; so you can compare the differences in your own time.

Best for everyday consumers

Our pick: TransferWise (review). The market leader in peer to peer payments, TransferWise is an innovative service led by an energetic founding duo, including one of the first employees of Skype. The service facilitates transactions at the mid-market rate, and they charge a low transparent fee. It has received a lot of praise from its customers and is supported financially by many well-known investors.

Honourable mention: TransferGo (review).

Best for expats

Our pick: CurrencyFair (review). Headquartered in Ireland, CurrencyFair is an expat-centric payment platform focusing on major currency corridors. They employ a technology-focused workforce who are attempting to make the payment process as efficient as possible. Its cost structure is in line with the other peer to peer market leaders, and they are constantly building additional functionality for the benefit of their users.

Honourable mention: TransferWise (review).

Best all rounder

Our pick: XE Money Transfer (review). A service with a lot of experience in foreign exchange. XE Money Transfer provides their customers with a personalised experience and can facilitate transfers of almost any amount. They make payments into over 170 countries around the world and funds are transferred at competitive rates. Their online platform is robust, and advanced tools can be accessed by speaking with their dealer desk.

Honourable mention: OFX (review).

Best for low cost transfers

Our pick: OrbitRemit (review). OrbitRemit is a relatively small money transfer service located in New Zealand. It only offers its services to residents of a select number of countries, however, in our assessment, it is the lowest cost provider in the market. If you can access their service and they make payments to your required destination, it’s an excellent choice for the budget conscious.

Honourable mention: CurrencyFair (review).

Best for business

Our pick: OFX (review). As a publicly listed company, OFX is one of the market-leading money transfer services in the world. They aim to provide truly global business money transfer solutions. While not the cheapest service available, the breadth of services offered by OFX is second to none. A thorough solution for small and medium businesses conducting trade internationally.

Honourable mention: WorldFirst (review).

Best for large values

Our pick: WorldFirst (review). A reliable service to transfer large amounts abroad. Competitive rates, advance foreign exchange tools, and a broad selection of international offices, allow the company to provide a consistent experience to its customers. WorldFirst offers a high-quality online platform which facilitates transfers, as well as provides access to market research and commentary.

Honourable mention: Currencies Direct (review).

Best for small values

Our pick: WorldRemit (review). A fast and flexible service, transferring to over 140 countries around the world. Established by a former consultant to the United Nations, the service is suitable for payments of up to £35,000. The company’s online platform is simple, easy to use, and allows delivery of funds by a variety of methods. Its fee structures are much more competitive than traditional remittance services.

Honourable mention: Azimo (review).

Best for speed and flexibility

Our pick: Western Union (review). If you want to get money somewhere quickly to all corners of the globe, it’s hard to go past Western Union. Payments can be initiated online with a credit card and be picked up by another party at one over 500,000 locations worldwide – almost in an instant. It is not a particularly cheap service and payments are limited to a maximum of £4,000. However, it is fast, there is no doubt about that.

Honourable mention: MoneyGram (review).

Best international money transfer services: The complete list

If you haven’t already found the best money transfer service to suit your needs, you can use this list to filter through the options available, as reviewed by us.

Conclusion

Depending what you’re trying to do, there are a number of services out there that can help you do it. In this post, I’ve listed a range of services I consider to be the best money transfer services for a particular use. If you still haven’t had any luck finding the right service for your needs, perhaps its worth taking a look at our post on how compare money transfer services.

If you’ve been transferring money internationally for some time, it may have come across your mind to automate the process. Life can get busy and it is surprisingly easy to forget to send off that regular money transfer, especially if it gets stuck on the end of a long to-do list.

A recurring payment is a smart way to arrange a schedule of regular transfers. It can not only save you time but also help you become organised and remain headache free when keeping on top of your day-to-day obligations.

In this post, we’ll take a look at the recurring payment, explain why it’s useful, and find out which money transfer services offer them. This way, you know exactly who to look to for a clean and effective solution.

What is a recurring payment?

A recurring payment is a currency transfer which you intend to complete on a regular basis. If you often make a transfer to a particular person or business, a recurring payment can be used to automate this process. That way, instead of having to manually complete the transaction each time, your schedule will automate the required payments in the value and on the date of your choosing.

Just about any type of transaction can be scheduled as a recurring payment. As long as you know how much you want to send, and how often you want to send it, you can schedule your transfer so the funds are delivered to your recipient on time, every time. Some of the most common types of recurring payment include:

• Mortgage repayments
• School and university tuition fees
• Remittances to family and friends at home
• Retirement pensions

At its core, a recurring payment is essentially an automated spot contract. And while all money transfer services offer spot contracts to a degree, not all allow you to automate the process. Some will permit you to make a repayment with a few clicks, but for those who want less to worry about at the end of the day, the recurring payment will truly allow you to set and forget.

When is an automated regular payment useful?

Banks and other financial institutions have long allowed you to arrange an automated payment. But as the presence of money transfer services has grown, they have also added this functionality to their products. This is good news for everyone, as money transfer services can save you a significant sum of money when compared directly with banks.

While a recurring payment has obvious benefits for scheduling transfers, there are other uses. An automated payment can also be used as a basic hedging strategy, allowing you to average out the cost of acquiring a currency over time. This is particularly a helpful tactic for acquiring large amounts of currency, as it limits the overall effect of foreign exchange volatility.

For example, let’s say that you had £100,000 and you wanted to exchange this into US Dollars. If you decided to exchange the whole amount at once, your transfer would be subject to today’s spot rate. Now, you have no idea how the currency has performed recently, so you really are exposed to the current state of the market. Instead, you could use a recurring payment to transfer smaller parcels and average out the rate over time.

Practical examples of a recurring payment in action

Below, let’s take a look at how a recurring payment can be used for an automated regular payment. I’ll provide three common use examples.

University tuition. You’ve sent your daughter to a university in Australia (lucky girl). The university requires that tuition is paid every quarter in the amount of AU$ 5,000. You instruct a money transfer service to exchange the equivalent of this amount every three months. To ensure that each payment is successful, all you need to do is make sure your local currency balance is sufficient to accommodate.

Remitting your salary back home. You moved to the United Kingdom for a new job and now remit part of your salary back to your family at home. You instruct a money transfer service to exchange £1,000 into your home country’s currency every month. From each month thereafter, the equivalent of £1,000 is paid into your family’s bank account at the spot rate of the date that each recurring payment is made.

Transferring life savings. You and your wife have decided to move to Spain for your retirement. You have £1,000,000 in savings and wish to transfer this to your new Spanish bank account. Instead of transferring the entire amount at once, you decide to make quarterly payments of £83,333 over the next three years, to average out any volatility in the exchange rate over this time.

Which services provide an automated payment feature?

Here are the money transfer services that allow you to set up an automated regular payment:

How to set up a reoccurring payment

The process of setting up an automatic payment is slightly different for each service. While some allow you to set up a schedule of payments using their online platform, many will require that you speak with a customer service person to organise this over the phone.

Whichever the case, the basic process is as follows:

1. Contact your service. Let them know how much you want to exchange, where you want the funds sent, and how often you want this to occur. You’ll need your recipient’s bank details on hand, so you can provide all the information required.

2. Provide instructions. Once you’ve provided the details you’ll need to provide your final authority to proceed with the recurring payment. In essence, you will be contracted to pay the money transfer service the agreed funds until the payment schedule lapses or the transaction is cancelled.

3. Send in your funds. Before any money transfer service will exchange currency on your behalf, you’ll first need to ensure that you have a sufficient balance in your payment account. This could involve having a service hold a deposit in trust, or you schedule a payment from your bank account into theirs.

4. Cancel when no longer required. If a recurring transfer is cancelled, a money transfer service will cease to complete any more payments on your behalf, and return any balance of funds that they hold.

Conclusion

A recurring payment is the best way to automatically schedule currency transfers into the future. This is very useful for meeting regular obligations such as an international mortgage, school tuition fees or pension payment. In addition to being convenient and time-saving, a recurring payment can even be used as a natural hedging strategy to combat against fluctuating foreign exchange rates over time.

A spot contract. It really doesn’t get much more straightforward in the world of international money transfer. So is it easy to arrange? Well, not exactly. First, it depends on what you’re after. And second, how do you choose a service to use when there are hundreds soliciting your business?

It’s a good question and not necessarily a simple one to answer. The reality is that each money transfer service is slightly different, and the performance of each varies when compared against a standardised benchmark.

In this post, we’ll explain the concept of the spot contract and let you know who offers them. This way, you can differentiate each service from its competitors and select the right one for you.

What is a spot contract? A definition

A spot contract is a single foreign exchange transaction at the current available rate. It is the most basic and common form of payment there is. It involves the purchase of currency for settlement on the spot date, which is technically two business days later. However, most services insist on immediate settlement, so practically speaking, it is a buy now, pay now arrangement.

If you’d like to make an international payment right away or with very little notice, then a spot contract is the one for you. Many modern money transfer services allow you to complete these transactions through their online platforms, or if you are dealing with particularly large values, a foreign exchange dealer may be able to help assist you with the process personally.

From sending small amounts to friends and family overseas, to large commercial purchases of plant and machinery, a spot contract is suitable for all single currency transfers. If your requirements are simple and you’re not concerned with the volatility of exchange rates over time, a spot contract is adequate for exchanging one currency into another and sending these funds to your desired recipient.

Examples of exchanging currency at the spot rate

Below, let’s take a look at how a spot contract can be used to accomplish a money transfer. I’ll provide three quick examples; one each for small, medium and large amounts.

£1,000. Your teenage son has gone on an international backpacking adventure. He gives you a call from his hotel and lets you know that his wallet has just been stolen. As a result, he has no money and asks you to make an emergency transfer. You sign up with money transfer app and send funds to him that are available for cash pick-up at a local kiosk within a matter of minutes.

£10,000. You are working abroad as an expat and want to send some of your savings back to your home country. You sign up with a money transfer service and use their online platform to arrange a spot contract at today’s exchange rate. After making the money transfer request, the funds arrive into your bank account at home three days later.

£100,000. Your business just opened a small office in a nearby country. Once the company’s new subsidiary has been established, it awaits an injection of capital to begin trading. You open a business account with an international payment specialist, and ask that one of their foreign exchange dealers guide you through the process of arranging a spot contract at a competitive rate.

What to consider when looking for a spot transfer service

So, now that you have a general idea of what a spot contract is, and have seen some examples of how they operate, what should you be looking for when it comes to selecting a service? Basically, every service out there offers spot contract functionality, therefore, it’s a good idea to think about what exactly you’re after before signing up.

Here are four things worth considering:

1. How would you like your funds delivered to the recipient?

Depending on the value and purpose of your spot contract, you may have a preference of how the funds are actually delivered to your recipient. Most transfer services that deal with medium to large values will usually only deliver funds to another bank account. However, many low-value remittance services can offer a variety of flexible delivery methods, such as:

• Cash pick-up
• Door to door delivery
• Mobile money
• Airtime top-up

2. How quickly do you need the transfer to be made?

The time required for each service to complete your spot contract will vary, and most provide an indication of this on their website. If you need a fast exchange, you may need to forego a better rate. On the other hand, if you are prepared to wait a few days you can reduce your overall costs by a percent or two. Many services allow payment by debit or credit card for low values, which can speed up the process for urgent transfers.

3. How does the cost of a service compare to other options?

Before committing to using a money transfer service, it’s important to understand what charges you’ll incur by using it. First, it may charge a transaction fee for executing each transfer. Second, it may also take a margin on the exchange rate provided to its customers, also known as the “spread”; which is the difference between the rate of the wholesale market and the rate offered to the customer.

Considering this, what types of expenses should you keep your eye on? Both. In my opinion, you should try not to focus on either in isolation. Instead, try to compare the quotations of a spot contract based on the overall cost of each service when compared to our benchmark; the interbank mid-market rate. To find out the mid-market rate of any currency pairing, use this tool over at xe.com.

4. Do you need professional advice or advanced tools?

If you’re confident that all you’re going to need is a basic spot contract, that’s fine. But before you go through the process of signing up with a service, first make sure it has the all the features you’ll need. A simple service may not do everything you want, while more specialised payment services can provide currency advice, as well as a range of advanced foreign exchange tools, such as:

• Regular payments
• Currency forward contract
• Foreign currency options
• Market order
• Multi-currency account

Want to read more about how to compare services?

If you’d like to know more about how to complete a comprehensive review of the options available, I suggest that you take a look at our post on how to compare money transfer services. If you have specific queries about personal money transfer, I’d recommend taking a look at our article on how to send money online. While those with commercial interests should take a look at our post on business money transfer.

What services can exchange currency at the spot rate?

Now that you’ve thought about what you’re after in a spot contract, we can begin to narrow down the range of services that will be most suitable. Generally speaking, services can be placed into three broad categories; remittance services, peer to peer services, and international payment specialists.

Remittance services

A remittance service is probably what first comes to mind when you want to arrange a spot contract. They can be exceptionally fast, with many providing instant delivery. Most are part of a large retail delivery network, with some networks being larger than others. These services are mainly suitable for low transfer values and allow you to fund transactions by a variety of means, such as debit or credit card.

For all their benefits, however, there are limitations. They can be quite expensive, as it takes a lot of resources to grow a network and pay commissions to retailers. Also, as many older services have modified their technologies over time, their systems have become inefficient when compared to their modern competitors. The often results in a cumbersome experience from a usability standpoint.

Peer to peer services

Peer to peer services are those that have been created to solve a very specific problem. Instead of entering the foreign exchange market, where possible, they aim to use their customer’s own funds to satisfy the currency requirements of other customers. Typically consisting of an online platform, a peer to peer service is usually a cheap, clean and functional way of arranging a spot contract.

Of course, there are a few downsides. They are often limited in respect to what countries they can accept customers from, and what countries they can deliver funds to. Because these services achieve most of their efficiencies from establishing their own payment infrastructure, it leads them to focus only on popular corridors, at least in their formative years.

International payment specialists

International payment specialists are effectively foreign exchange brokers who aim to provide a broad suite of money transfer products, in addition to the basic spot contract. They can advise on a range of advanced tools, such as forward contracts, options and market orders. Their services are perfect for high-net-worth individuals and businesses conducting large or complex transfers.

However, for all the products provided by these services, there also comes an additional cost. When compared with peer to peer services, you’ll find that international payment specialists are slightly more expensive. This is partly due to the advanced products they offer, their customized advice, and also due to their use of the SWIFT payment network.

Conclusion

In this post, we’ve outlined that a spot contract is a single foreign exchange transaction at the current available rate. Your choice of money transfer service will generally rely on a number of factors such as the way in which you want to currency delivered, your timeframe, the total cost involved, and if you require any advanced features. While there is an abundance of services that can help, I hope that this post has narrowed down the list of potential suitors.

Foreign exchange rates are constantly moving and can be volatile at the best of times. As a buyer of foreign exchange, sometimes you need your desired currency right away, while at other times you might be willing to wait for a better deal if there is a chance that the rate will improve in the future.

For non-urgent currency transfers, a market order can be used to transact on your terms. This can be very useful for individuals and businesses who have requirements with longer lead times, and who can afford to be picky about where and when they transact.

In this post, we’re going to take a look at market orders in a foreign exchange context, and explore what they are and how they can be used to achieve a more favourable exchange rate.

What is a market order?

A market order is a type of foreign exchange tool that allows you to request that your desired currency be bought or sold if its exchange rate reaches a predetermined level sometime in the future. It is a product typically offered by banks and specialised money transfer services, who can take your instructions and automatically acquire the currencies you require, based on the criteria you set in advance.

If you don’t require currency immediately but you do need it eventually, a market order can be useful for obtaining what you want at a preferred rate. This is most appropriate for individuals and business who have specific foreign exchange requirements in the medium to long-term, who also have the flexibility to delay acquisition until if and when a better rate becomes available.

For example, consider that the current spot exchange rate for GBP/USD is 1.3000. You need to purchase US Dollars but you’re not quite happy with the exchange rate right at the moment. You have a feeling that the rate might improve over the next few months, so you place a market order to buy at 1.4500. Three months later, the GBP/USD rate reaches 1.4500 and the US Dollars are automatically purchased on your behalf.

Why use market orders?

A market order enables you to target an exchange rate that is currently not yet available. Many money transfer services offer foreign exchange market research and commentary, and this can be used to set your expectations for the future. The use of market orders can be helpful for maximising the value you obtain when entering into a foreign exchange transaction.

Now, just because you have a feeling that an exchange rate will reach a certain level, there is by no means any guarantee that this will occur. But if you have the time and patience for it, a market order is the best way to ensure that when the desired rate is hit, you will secure it for the amount you want to exchange. And, if in the meantime you change your mind, the order can be amended or cancelled prior to any transaction taking place.

For all their benefits, however, a market order is not appropriate for all situations. If you require an immediate transfer, then a spot contract is definitely the way to go. Or, if you’re trying to hedge against adverse movements, a currency forward contract or foreign currency options may be more appropriate. But if you want to secure the best possible rate that is not yet currently available, a market order is the tool for you.

Types of market orders

The are two types of market orders, each serving a slightly different purpose:

Limit order. A limit order enables you to set a specific rate of exchange that is above the current market levels. Once this rate is reached, your desired currency will automatically be purchased. Limit orders are particularly useful if you know you need to make a payment in a foreign currency at some point in the future, but are not bound by tight deadlines.

For example, consider that you’ve just immigrated from Australia to the United Kingdom. You have life savings in Australia but are aware that the AUD/GBP has taken a hit in recent times. Instead of making a transfer at the current spot rate, after looking at the historical trading history of the pair, you set a limit order at a level so when the currency recovers, your transfer will be made automatically.

Stop loss order. A stop loss order works in a similar fashion to a limit order, but instead of specifying the ideal rate at which you want to purchase currency, you specify the minimum exchange rate at which you would be willing to transact. This is suitable for ensuring that you can meet your financial obligations if that market was to move unfavourably against you.

For example, consider that you’re holding a balance of British Pounds, and you’ve just purchased a property in Spain. You’ve negotiated the purchase price in Euros on the basis of today’s exchange rate. You have decided that the maximum you’re prepared to pay if the rates changed in the short term. You set a stop loss in GBP/EUR to automatically exchange your Pounds to Euros if the rate drops below your budgeted rate.

What does a market order cost?

There’s no charge or fee involved in arranging a market order; well, not directly anyway. While it may not cost anything to place a market order, there is a cost incurred when the transaction is eventually executed. These usually include a transaction fee, and the spread in exchange rate; which is the difference between the interbank mid-market rate, and the rate offered to you by a money transfer service.

If you would like to read more about what type of costs to expect, take a look at our post on how to compare money transfer services.

Market order example: A basic hedging strategy

In addition to being used in isolation, a limit order and stop loss order can be used in conjunction as a basic risk management strategy. By framing them up as an exchange rate window, you can set a limit order to trigger an ideal rate, while at the same time setting a stop loss order as a minimum viable rate. This way, you can aim for reaching a favourable exchange rate, and at the same time protect yourself from adverse movements if things don’t go your way.

Consider a scenario where you operate a business in the United Kingdom with a wholly owned subsidiary in the United States. You are servicing a US$ 100,000 loan facility in the United States, and currently hold a balance of these funds in Pounds. The current GBP/USD rate is 1.3000, but you’ve received advice that the rate might move favourably in the coming months. As a result, you set an ideal transaction rate of 1.5000, with a stop loss order of 1.2000 to protect your downside risk.

A few months down the track, the Pound appreciates against the Dollar and the limit order is triggered at 1.5000. The cost of funding the loan facility has reduced from £76,923, at the original spot rate, to £66,666 – an overall saving of £10,256. In this case, the strategy has successfully allowed your business to benefit from a favourable movement while protecting you from adverse conditions.

What services can arrange a market order?

Below is a list of money transfer services which offer market orders and advice on foreign exchange hedging:

Conclusion

A limit order can be used to obtain a more favourable exchange rate if you have the time and patience to wait for it. The stop loss order variety can also protect you from downside risk if markets unexpectedly move against you. Used together, a market order can form a basic risk management instrument, which can be particularly helpful for individuals and businesses who have foreign currency requirements in the medium to long term.

The future by definition is uncertain. And I can’t think of anything more uncertain than foreign exchange rates. The supply and demand for currencies are influenced by almost an unlimited amount of factors. Everything from the performance of an economy through to who holds political power can affect the prices you pay.

If you are looking at making a large international transaction, there’s a good chance that you’re exposed to exchange rate risk. There are a number of hedging strategies that can be used to minimise this risk, with one of these instruments being foreign currency options.

In this post, we’ll take a look at how a foreign currency option works, and how they can be used to minimise the exchange rate risk of financial transactions occurring in the future.

What is a foreign currency option?

A foreign currency option gives you the right, but not the obligation to purchase a particular currency at a predetermined exchange rate. They are one of the most common and helpful ways of protecting a financial transaction from adverse exchange rate movements and are used by individuals, small businesses and large corporations alike.

Foreign exchange options can be an extremely versatile tool. At its core, a currency option can help a business protect the value of an international transaction, such as purchasing property or acquiring goods from a supplier, by limiting the risk associated with a potential adverse movement in rates. In these instances, the exchange rate risk can not only affect the viability of the transaction but even the business itself.

But more than that, a foreign currency option can be combined with other tools offered by money transfer services such as a spot contract or currency forward contract. By combining the use of a currency option with other foreign exchange products, hedging strategies can be devised to protect a transaction, or even profit from it, no matter what the future holds.

How can currency options be used?

Currency options are best thought of as an agreement between two parties where an exchange rate is agreed for a future date. The date can be set anywhere from one week to two years from the period when the contract is agreed. The two parties will typically consist of you and a financial institution, such as a bank or specialised money transfer service.

When foreign currency options are used alone, the buyer of an option usually pays a small premium to the seller of the option. The cost of the premium will vary depending on a few factors, such as the number of currency option contracts purchased, their value, and who the seller is. If an option is purchased alongside another technical instrument, the option can be packaged into the overall pricing of the hedging strategy.

A foreign currency option comes in two forms:

Call option. A call option provides you with the right, but not an obligation, to purchase a currency at a specified price. For example, let’s assume that you purchased a GBP/USD call option at the exchange rate of 1.3000, with a maturity date in 90 days time. If, after 90 days, the GBP/USD exchange rate had depreciated to 1.2000, you could proceed to exercise your right to purchase US Dollars in exchange for British Pounds at the preferred rate of 1.3000.

Put option. A put option gives you the right but not obligation to sell currency at the specified price. If we take our previous example and look at the inverse, consider that you purchased a GBP/USD put option at the exchange rate of 1.3000 with a 90-day maturity. If, after 90 days, the GBP/USD had appreciated to 1.4000, it would be best to exercise your right to sell US Dollars in exchange for British Pounds at the preferred rate of 1.3000.

In the money or out of the money

Just because you’ve purchased an option to buy or sell currency, doesn’t always mean that it will be right to proceed with exercising it once it reaches maturity. This flexibility, the choice to proceed with exercising an option or not, is one of the reasons why they are so popular. It effectively acts as a form of insurance, so you can proceed with the most favourable solution at the time.

At the maturity of an option, you will arrive into one of two scenarios:

In the money. A currency option which presents itself as being favourable to execute is referred to as being “in the money”. This means that the exchange rate of the option is better than the currently available spot rate. In this case, it would be best to execute the option and purchase your currency at the pre-agreed rate. The benefit to you is that you have saved money by not having to purchase your currency at the higher spot rate.

Out of the money. A currency option which presents itself as being unfavourable to execute is referred to as being “out of the money”. This means that the exchange rate of the option is worse than the currently available spot rate. In this case, it would be best to allow your option to expire, and instead, buy your required currency at the spot rate.

Common hedging strategies using currency options

While it is certainly possible to use a foreign currency option in isolation, when combined with other foreign exchange instruments, such as a forward contract, they become even more powerful. Using these tools together can enable a multi-layered hedging strategy, which allows you to benefit no matter which way an exchange rate moves.

The are four types of hedging strategies which commonly use options:

Vanilla option. Gives you the right, but not the obligation, to buy or sell currency at a specific exchange rate on a specific future date. Its name, vanilla, implies that it is the most basic form of option there is. A small premium is paid for acquiring the option, then at its maturity date, you can decide whether or not you’d like to proceed with your purchase at the agreed rate.

A vanilla option allows you to benefit from any favourable movements in the market while acting as worse case rate to protect you from unfavourable movements. By maturity, if the exchange rate has moved in your favour, you can simply allow the option to expire and instead purchase currency at the spot rate.

Collar option. Enables you to set a worst-case rate, while also allowing favourable moves up to a specified best case rate. This structure sets a window around the exchange rate, so you know that at the very least, the rate you will eventually purchase currency at will fall between the worst and best case rate. It is effectively a hedge in both directions, so you can’t lose too much, and you can’t gain too much either.

At the maturity of the option, if the spot rate is in between the worst and best case rates, you can proceed with purchasing your required currency at the spot rate. If the spot rate is less than the worst case rate, you will be able to purchase at the worst case rate. However, if the spot rate is higher than the best case rate, you are required to purchase at the best case rate. Collar options are generally structured in a way that no premium is paid for their use.

Participating forward. Provides a protected worst case rate, while still allowing favourable moves on a predetermined portion of the amount hedged. For example, a 50% participating forward means that the whole amount of the currency to be purchased is protected at the worst case rate, but only 50% of the amount can benefit from a favourable movement in the exchange rate.

At the maturity of the forward, if the spot rate is better than the worst case rate then you are only obligated to purchase the predetermined proportion of the hedged amount at the worst case rate, while the rest can be purchased at the improved spot rate. Participating forwards are generally structured in a way that no premium is paid for their use.

Forward extra. Locks in a worst case rate while allowing for favourable moves up to a predetermined trigger rate, but no more. If the trigger rate is met or exceeded at any time during the life of the forward, you are required to purchase your currency at the worst case rate. When selecting a trigger rate, the aim is to make it high enough so that the spot rate may approach but not reach it.

If the spot rate on expiry is in between the worst case and trigger rate, you can purchase currency at the improved spot rate. If the spot rate at expiry is less than the worst case rate, you can purchase currency at the worst case rate. Forward extras are generally structured in a way that no premium is paid for their use.

Practical examples of foreign currency options in use

Let me give you two examples of how a foreign currency option can be used as part of a hedging strategy in a real-world situation.

Example 1: Option on its own

Let’s say that you run a company based in the United Kingdom, and have just purchased a piece of equipment from a supplier in the United States. The cost of the equipment is US$ 100,000 and payment is due in six months time. The current GBP/USD spot rate is 1.3000, and if you wanted to, you could pay the supplier today for a total cost of £76,923.

But for commercial reasons, you would rather hold onto your money and instead hedge your intention to purchase US Dollars with a vanilla option. A forward rate is typically slightly lower than the spot rate, and an option rate is slightly lower again. You decide to purchase an option with the worst case rate of GBP/USD 1.2900, which matures in six months. The premium charged for the option is 2.5% or US$ 2,500.

So, now let’s consider the first of two possible scenarios. By the time the option matures, the market moves against you and the GBP/USD weakens by 10% to 1.1610. If you had not purchased an option, you would now need to pay £86,132 to acquire US Dollars. Instead, you were sensible enough to hedge your position. So, by now executing your option at the rate of 1.2900, you are entitled to purchase the full US$ 100,000 at a total cost of £79,442, including the cost of the option’s premium.

On the other hand, what happens if the market moves in your favour and the GBP/USD strengthens by 10% to 1.4190? In this instance, you could simply let your option lapse, and instead, buy US$ 100,000 at the spot rate for a total cost of £72,395, including the premium of the forgone option. Overall, this strategy has offered protection from downside risk, while allowing you to benefit from the strengthing Pound.

Example 2: Option combined with a forward contract

Once again, let’s put your feet in the shoes of a company located in the United Kingdom, who has just purchased a piece of equipment from a supplier from the United States. The price of the equipment is unchanged at US$ 100,000, with payment due in six months time. The current spot rate is 1.3000, and to pay the supplier today would cost you £76,923.

This time around, you decide to use a more complex hedging strategy; a participating forward. The forward rate for a six month period is 1.2950, but you are prepared to accept a worst case rate of 1.2800. As a result, you buy a participating forward at a rate of 1.2800 with a participation proportion of 50%. The forward matures in six months, however, no premium is payable; as the costs are built into the product.

In our first scenario, by the time the forward matures, the market moves unfavourably and the GBP/USD rate weakens by 10% to 1.1520. If you had not purchased a participating forward, you would now need to pay the current spot rate, leading to a total cost of £86,805. Instead, because the full amount of your purchase is protected by the hedge, you can acquire your US Dollars at 1.2800 for a total cost of £78,125.

If instead, the Pound had strengthened over this time, things would look a little different. Because you elected to proceed with a participation proportion of 50%, only half of your currency purchase would benefit from favourable movements. Had the GBP/USD appreciated by 10% to 1.4080, half of your US Dollars would be purchased at 1.2800 and the other half at the improved spot rate of 1.4080. This would lead to a new effective rate of 1.3409 and a total cost of £74,573.

Benefits of using foreign currency options

If your business often deals in international markets, there is a good chance that you’re exposed to exchange rate risk. These risks can have a significant effect on your budget, profit margins, and ultimately the viability of your business. And while it is possible that private individuals may find the need for currency options, they are more commonly used by businesses and corporations.

Here are some of the benefits resulting from the use of foreign currency options and other hedging strategies:

• Protects the profit margins of a transaction
• Manages the impact that foreign exchange volatility has on your business
• Enables you to accurately forecast financial performance
• Allows you to maintain consistent pricing of goods and service despite fluctuating rates

Where to buy a foreign currency option

Below is a list of money transfer services which offer foreign currency options and advice on foreign exchange hedging:

Conclusion

A foreign currency option is a versatile tool for managing exchange rate risk. Used on its own or in conjunction with other instruments, it can provide you with peace of mind when the future value of a currency is unclear. There is a range of money transfer services that can facilitate and provide advice on a range of hedging strategies, which is particularly useful for businesses conducting transactions internationally.

As the internet makes its way even further into our everyday lives, there are more and more people who choose to do their shopping online. And with this increasing volume of shoppers comes an opportunity to sell your wares – to not only the people around you but also people all over the world.

Online marketplaces, such as Amazon and eBay, make it easier than ever to start a business of your own. But despite the convenience of these platforms, selling into a global market presents some challenges; namely, accepting, holding and making payments in foreign denominated currencies.

Luckily, there are a range of international payment specialists that have devised a solution; the multi-currency account. In this post, we’ll delve how a borderless account works and how they can achieve your goals.

What is a multi-currency bank account?

A multi-currency account allows you to hold a balance of foreign denominated currencies all in one place. They act like individual bank accounts, and in addition to holding foreign denominated currencies, allow you to make and receive payments in those currencies. Sometimes also called a borderless account, they are one of the newest cross-border payment products on the market.

Developed for both individual and commercial use, a multi-currency account is especially useful for the business models that have been established alongside the growth of the internet. They align themselves tightly with operations that rely on income sources from different locations around the world. For these businesses, the ability to hold a balance of foreign currencies can save unnecessary transaction costs.

Perfect for e-commerce stores that accept payment in various currency denominations, many multi-currency account services also integrate with popular online marketplaces such as Amazon, eBay, Etsy, Shopify, Walmart, and Jet. This is incredibly efficient for small commercial operators, but also freelancers and other individuals who simply would like an effective way of holding foreign denominated currencies without using cumbersome banking services.

What are they most useful for?

As I’ve mentioned, a multi-currency account allows you to hold various currencies, as well as make and receive payments in those currencies. This can be very useful, as it allows you to operate in regions of the world which would otherwise not be possible, or at the very least, be difficult and expensive. The result is that you can easily receive payments from customers in other countries, and also pay suppliers if required.

To accomplish this, each of your currency accounts is usually allocated its own internationally recognised bank details. That way, you are able to provide these details to any of your counterparties, and they can either arrange payment into this account or you can make an outgoing transfer from it. Here are some of the types of bank details you can expect to receive, to name a few:

• American account number and routing number
• Australian account number and BSB code
• British account number and sort code
• European IBAN

Some providers of borderless account solutions are more tailored towards everyday consumers than others. TransferWise (review), for example, can provide you with a debit MasterCard or Visa linked your multi-currency account. This is particularly useful if you are a freelancer or contractor who makes purchases online, or engages in other credit card related activities, such as booking flights or hotels.

A practical example

Let me give you an example of how a multi-currency account solution can work in a real-world situation.

Consider that you are a consultant based in the UK, but many of your clients are located in the United States. Maybe you are a software developer, website designer or maybe you run a small e-commerce store. The location of your customers doesn’t matter so much to you, but I’m sure you’ll agree that it will be most convenient for them to pay in their local currency.

However, this is not so great for you. If someone pays you in US Dollars, you’ll need to exchange that into British Pounds so it can be received into your UK account. This presents a problem; exchanging currency can get expensive. Banks, online marketplaces, and even money transfer providers are going to charge you to facilitate that. Or there is another solution; receive and hold US Dollars in a multi-currency account!

By doing this, you are taking more control over how and when you want to exchange money. Perhaps you have bills to pay in US Dollars also? It would be much easier to pay these suppliers with the US Dollars you have received from your clients, rather than making payment from your UK account. Either way, it is completely your choice if and when you’re ready to transfer your funds to the UK. And when you do, you’ll receive the benefit of working with a international payment specialist.

This leads us to introduce how a multi-currency account aligns with a money transfer service, and how this will benefit you in the long run.

A borderless account as an extension of money transfer services

Banks and other large financial institutions are the traditional providers of currency services, including foreign denominated bank accounts. However, these banks, despite their size and the strength of relationships with their clients, are often expensive. This means that they may not always provide rates that align closely with the interbank mid-market rate. And that, by the way, is why money transfer services exist in the first place.

Money transfer services specialise in foreign exchange and often do it much cheaper than traditional banks. Also, as of late, they have branched out to offer multi-currency account services to their clients. They offer the ability to establish foreign denominated accounts in a simple and seamless process, and in addition, any exchange with them is completed at much more competitive rate than usually offered by banks.

So, while international payment specialists are not technically banks, they can be used as a substitute for holding traditional bank accounts. Althoug, because they’re not fully fledged banks, they won’t be able to provide a full suite of financial services, such as loans, credit cards and investment advice. But they might be able to offer an economical payment solution for your international endeavours, including foreign exchange tools, such as a currency forward contract, an option or market order.

The benefits of a multi-currency account

Now that we understand what a multi-currency account is and how they work, what are the benefits you can expect from using these services?

• Receive payments in different currency denominations
• Hold payments in different currency denominations
• Send payments in different currency denominations
• Transfer between these currency accounts occurs at much more competitive rates than offered by banks
• Generally free to open and no ongoing monthly fees
• Some consumer services may offer the ability to link a debit MasterCard or Visa
• Excellent solution for freelancers, contractors, e-commerce businesses and sellers in online marketplaces

Where to find one

Below, we list the services which offer multi-currency bank account solutions, and provide our pick for best consumer and business product.

Best for individuals: TransferWise (review). The market leader in peer to peer payments, TransferWise is an innovative service led by an energetic founding duo, including one of the first employees of Skype. The service facilitates transactions at the mid-market rate, and they charge a low transparent fee. A debit card can be attached to their borderless account for seamless online purchases.

Best for business: WorldFirst (review). Reliable service to send money online with. Competitive rates, advance foreign exchange tools, and a broad selection of international offices, allow the company to provide a consistent experience to its customers. WorldFirst offers a large selection of account denominations, which is exactly what a business needs in a truly global economy.

Conclusion

Multi-currency accounts are the perfect solution for individuals and businesses who conduct their commercial affairs across international borders. They allow funds to be received and stored in a range of currency denominations. It is the closest thing you can get to a borderless account solution, which is not only very convenient but can also save you substantial transaction costs in the long run.

With every passing day the world gets smaller and smaller. More people are travelling internationally, for work and for play. Banking systems have been built on older technology, and are struggling to adapt with the increased velocity of cross-boarder transactions. The cumbersome and expensive networks of old have opened the door for new kinds of money transfer services.

Created with a customer-first mind set, many newer money transfer companies use state of the art technology, and combine this with creative marketing endeavours to reach their desired clients. These clients, the millions of people who remit money internationally every year, are desperate for innovative solutions to wire their funds around the globe.

In this post, we will provide a brief summary of the types of money transfer services you can find in the market, and display a complete list of money transfer companies so you can explore their capabilities in your own time.

Our guide to money transfer companies

If you’ve only just arrived at our website, there are a few important posts you should take notice of. First off, read about how to compare money transfer services. In this article, we take you through the factors we consider when completing our reviews, so you know what things to weigh up when making your own decision. In addition to these tips, we also highlight some of the common features offered by money transfer services, such as:

• Spot contract
• Recurring payment
• Currency forward contract
• Foreign currency options
• Market order
• Multi-currency account
• Flexible delivery

If you would like to transfer money to a friend or family member abroad, you might like to read our article on how to send money online. In this piece, we outline the various services that are most helpful for personal customers and explain how money transfer companies can be much cheaper and quicker than typical banking alternatives.

Commercial organisations, on the other hand, might need more sophisticated foreign exchange solutions that the average private individual. If this sounds like you, we have prepared a special article on business money transfer. Here, we take a in-depth look at the advanced functionality offered by many larger money transfer companies in the market, who are specifically geared to provide technical advice.

Once you’ve got an idea of the features you’re after in money transfer services, you should be pretty close to making your first transaction. If you’re new to making financial payments online, it may be a good idea to take a look at our post on how to transfer money safely. This article will provide you with various pointers to ensure that your private matters remain private when dealing with money transfer companies.

The complete list of money transfer services

Now, let’s get to what you’ve been waiting for. Below is a list of money transfer services which we have covered. At this point of time, we have completed a review of over twenty different money transfer companies. We have persoanlly used each service and analysed the services in which they offer.

Some key information about each money transfer service is listed in our comparison table. This includes details such as the number of currencies they exchange, the estimated time it takes for funds to be delivered, the average cost of the service when compared to the mid-market rate, and our overall score.

Here is our complete list of money transfer services:

Conclusion

In this post, we’ve highlighted a range of posts that you might like to read when you begin to navigate the market of money transfer services. This includes articles for personal and business transfers, as well as the importance of being safe online and understanding how the mid-market rate provides a benchmark for value. Finally, we have listed all the money transfer companies that we have reviewed, and placed them in a table so they can be sorted according to the factors which are most important to you.

A currency forward contract is a very useful tool for transferring money internationally. Exchange rates can be volatile and change with the ebbs and flows of the market. If you are buying or selling assets in a foreign currency, such as a real estate or piece of equipment, a sudden change in the rate can undermine the value of any underlying transaction to which it attaches.

This form currency risk can certainly invoke anxiety, and if the market moves the wrong way, potentially cost you a lot of money in the process. In this post, we’ll take a look at forward exchange contracts and explore how they can be used to hedge against future movements in the foreign exchange market.

What is a currency forward contract?

A currency forward contract is a foreign exchange tool that can be used to hedge against movements in between two currencies. It is an agreement between two parties to complete a foreign exchange transaction at a future date, with an exchange rate defined today. For example, an agreement to sell another party £50,000 for €50,875 in six months time, at the rate of GBP/EUR 1.1175.

Entering into a currency forward contract does not require an upfront payment of any sort, but it is a contractual arrangement between the two parties. This means that you must proceed with the agreed transaction, no matter what occurs after the agreement has been made. Even if the exchange rate has since moved in your favour, and that you’d be better off not proceeding with the forward exchange contract, you’ll still need to honour the original terms.

This is not all bad news, though. The primary reason for entering into a forward exchange contract is to limit the downside risk associated with the movements in the exchange rate. Exchange rates change every day, and sometimes they can change quite a lot. By choosing to lock down the rate today for payment at a future time, you remove the unknown risks associated with future movements in the market.

A simple forward exchange contract example

Let’s say that you are from the United Kingdom and you have just agreed to buy a house in Italy. The purchase price may have been agreed today, but the settlement of the property – the actual transfer of funds from the buyer to the seller – may not occur for another three months. If the exchange rate was to change over this time, you could end up paying much more for the property than you originally thought.

To hedge against this, you can purchase a currency forward contract. This contract would specify that you intend to exchange Pounds for Euros in three months time at an exchange rate specified today. The benefit of doing this is that if the Pound depreciates against the Euro throughout this time, you will have successfully hedged your risk – saving you money for your effort.

Now, of course, there is an opportunity cost when using a forward contract. The cost of using a currency forward contract is that you will forego any benefits of the currency appreciating in your favour. But keep in mind, that predicting the future value of currencies is not easy, and unless you have a crystal ball, I wouldn’t recommend trying. So a forward exchange contract will protect you against unfavourable movements, but you cannot benefit from favourable movements.

Here is a quick summary of the pros and cons of using a currency forward contract:

Where can you buy a forward exchange contract?

Banks and other large financial institutions are the traditional providers of foreign exchange services, including forward exchange contracts. However, these banks, despite their size and the strength of relationships with their clients, are often expensive. This means that they may not always provide rates that get close to the mid-market rate.

A better alternative to using a bank is to consider an international payment specialist. These companies are essentially dedicated foreign exchange brokers who can assist with providing advice in regards to not only spot payments and future contracts, but also an assortment of options, market orders, and multi-currency accounts.

Here is a list of services that can assist you with a currency forward contract:

How is a forward contract priced?

The price of a currency forward contract is calculated using a couple of factors, including the current spot price of a particular currency pairing, as well as the effective interest rate in each country. The calculation itself is quite complicated, so we won’t go into it in any details here, however, the important take away is that a forward exchange contract rate will generally be slightly lower than the current available spot rate in any currency pairing.

For example, let’s just say that the current GBP/AUD spot price is 1.8306; meaning that 1 British Pound is worth 1.8306 Australian Dollars. In this instance, it would not be unusual for the GBP/AUD forward rate to be quoted as 1.8206. The effect of this is that if you wanted to enter into a forward exchange contract with a maturity date in, say, three months time, the rate available to you would be slightly less overall – 1.8206, rather than the current spot rate of 1.8306.

Using currency forward contracts in business

Future contracts can be especially useful for businesses conducting activities internationally. If assets or stock needs to be acquired in a foreign denominated currency, a currency forward contract will enable you to adequately budget for this transaction ahead of time.

Let’s consider a clothing manufacturer in Australia who sources wool for their outdoor products in New Zealand. They are provided with an invoice for NZ$ 100,000 from their wool supplier that is due to be settled in 60 days time. The AUD/NZD exchange rate is currently 1.0911, which means that the cost of acquiring NZ$ 100,000 today is AU$ 91,649. Let’s assume that we decide to be safe and buy a forward contract at AUD/NZD 1.0811 that matures in 60 days.

The total cost of acquiring NZ$ 100,000 is now AU$ 92,498; slightly more than the current spot rate, but we don’t need to transfer the funds for 60 days. This is the maturity date of the forward and also the due date of the supplier’s invoice. Between now and the due date, the exchange rate will almost certainly fluctuate, but the important thing for us is that we have locked down an exchange rate, so we know exactly how much we’re going to pay.

Let’s quickly examine the effects of this forward contract on the possible scenarios. Consider that in 60 days the Australian Dollar had depreciated against the New Zealand Dollar to 1.0511. If we had not decided to purchase a forward contract and instead made a spot contract at the time payment was due, the cost of funding the NZ$ 100,000 transaction would be AU$ 95,138. Therefore, by using a forward contract we have saved ourselves AU$ 2,640; a good result overall!

Of course, if the Australian Dollar moved the other way and appreciated against the New Zealand Dollar, we would have been better off to wait. But unless you had some magic ability to predict this, you would never know this ahead of time. Either way, in this example, the currency forward contract has completed its purpose; it has protected our wool manufacturer’s margins, so he can price the cost of the input into his process with confidence.

Combining forwards with options

Now, we have described that by using a forward contract, you give up any benefits resulting from a favourable movement in your currency. If you have more technical requirements, however, this is not always the case. Some sophisticated clients, with a little bit of professional help, may combine a forward contract with an option; allowing them to benefit whichever direction a currency moves.

An option is an advanced tool that provides you with the right, but not the obligation, to purchase a specified amount of foreign exchange in the future. It often requires the payment of a small premium to acquire the option and can be used in conjunction with forwards or on their own. If you’d like to read more about using options, take a look at our post on the subject.

Conclusion

Currency forward contracts are a useful tool for managing foreign exchange risk. By agreeing to purchase currency for a future date at today’s prices, you can effectively hedge against undesirable movements in the exchange rate. This can save you money and the potential of a headache when conducting large transfers for real estate or other property. While banks are often able to assist you with this function, international payment specialist can often secure more competitive exchange rates.

What is the mid-market exchange rate and why does it matter? The fact that you’ve arrived here suggests to me that it’s important that you know. If you are making cross-border payments, the mid-market rate is an essential reference point to ensure that you are using a competitively priced money transfer service.

Despite their looks, exchange rates don’t have to be complicated. If you can get your head around the mid-market rate, and understand how the prices offered by money transfer services relate to this benchmark, you will be placed in good stead. It really is the first step in determining that you’re getting a good deal.

Now, let’s take a look at the mid-market rate definition.

What is the mid-market rate?

The mid-market rate is essentially an exchange rate in its simplest form. Every day in the world’s foreign exchange markets, traders buy and sell currencies with each other on behalf of large banks and other financial institutions. Through this, they establish the supply and demand of each currency, which is represented by two prices; the price to buy a particular currency, and the price to sell it.

These two prices are not the same. The buy price will always be slightly lower than the sell price. This is to encourage traders to enter the market and begin trading – to provide “liquidity” to the market and make a small profit in the process. The mid-market rate is the middle point of these two prices and is the clearest representation of the true exchange rate at any one time.

The mid-market rate is also known by other names, such as the “interbank rate” and “real exchange rate”. It effectively represents the price at which banks and other financial institutions (including money transfer services) can acquire currency at. The mid-market rate moves up and down as it is affected by market forces for a particular currency, and by understanding what it is and what it represents is useful when acquiring currency yourself.

Why does it matter?

Knowing that the mid-market rate is the true exchange rate of a particular currency pairing at any one time, we can set it as a benchmark for comparing money transfer services against. If we assume that a service can acquire a currency at or close to the mid-market rate, we can reverse engineer their offer to see how far away it is from the mid-market rate; and thereby understand the total “cost” of us using their service.

Practically speaking, it is unlikely that a service will ever offer the equivalent of the mid-market rate, as most will add a profit margin or “spread” to a currency before selling it to you. However, by comparing the cost of each service relative to the mid-market rate, we are able to make a fair apples with apples comparison, without getting drawn into marketing and pricing games.

Speaking of pricing games, many services will charge a fee and/or a spread to differentiate themselves from their competitors. Because this can confuse matters somewhat, you should try not to focus on either in isolation. Instead, try to consider the overall cost of each service when compared to our benchmark; the mid-market rate. To find out the mid-market rate of any currency pairing, visit XE or Yahoo Finance.

An example

To understand how we can use the mid-market rate to find out the effective cost of a service, let’s go through an example together. Say that I’d like to send £1,000 from the United Kingdom to Australia and that I’d like to compare the money transfer services available.

Here, the mid-market rate of 1.7398 results in a direct exchange of $1,739. As this is only a theoretical rate, there is no “cost” as such. Of the services available to us, Service 1 is the most competitive of the bunch. It offers the mid-market rate but charges a slightly higher transfer fee than Service 2. We receive $1,729 in Australia, therefore $10 has been lost in charges – which translates into an overall cost of 0.57%. A pretty good result, all things considered.

If you’d like to know more about what to look for, read our guide on how to compare money transfer services.

What is a fair cost for money transfer?

So what is a fair cost for using a money transfer service? In my experience, a cost of less than 1% of the overall transaction value is considered competitive. Some market leaders, such as TransferWise (review), are trying to get this down even further, to around 0.5% of the overall transfer value. Over time, this should have an effect of pushing down average prices across the market, as services continue to compete for your business.

It is important to note, however, that the overall cost of money transfer will vary between currency corridors. For some currency pairings, such as between the United Kingdom and Australia, there is significant competition amongst services, leading to a lower cost on average. However, if you are transferring money between two lesser used corridors, you may find that the cost is generally higher. To find out more, the World Bank regularly publishes average remittance costs for popular currency pairings.

Conclusion

Before you make any international payment, take a minute to find out the mid-market exchange rate, and compare this to the prices offered by money transfer services. The mid-market rate shows you what the true exchange rate is at any one time, and will help you understand what the overall cost of using a service is. This will allow you to compare the options available in an orderly and meaningful way.

As I mentioned earlier, many money transfer services employ tricky practices to hide the true cost of using their service. From a customer’s perspective, I think that transparency goes a long way to establish and maintain trust. Everyone wants to know they are getting a fair deal, and by knowing about the mid-market rate, you’ll be in a much better position to do so.

With advances in technology, geographic location is no longer a barrier to trade. And while access to international markets brings great opportunity, it also presents a number of challenges. Business money transfer is one of the areas that you will need to address eventually, and there are certainly a lot of services out there willing to help. So how can you find the right one for you?

A little bit of research will help you navigate the chaos. As will a touch of guidance from someone who understands it. If you go it alone, you may be missing an opportunity to refine your business practices and make your budget go further. That’s where we step in; to help you identify what you need, and find a service that will help you get the best result.

In this post, we’ll take a look at business money transfer, and see what’s important when undertaking commercial cross-border payments. If you intend on making a transaction for personal purposes, you might be better off reading our guide on how to send money online.

Understanding your requirements

Before you select a service for business money transfer, it is helpful to take a minute to think about what you actually want to accomplish. You’ve probably figured out by now that using your bank can be expensive, and that money transfer services offer a cheaper alternative. But not all services are the same, so it will help to refine your criteria a little first.

You most likely have a strong relationship with your bank. Banks are an essential service, and they offer many financial products to help you establish your business and keep it growing. However, you may not be surprised to know that they do not always have your interests at heart. Business money transfer is a big source of revenue for banks, and they have to make their profit from someone. In case you’re wondering, it’s from you!

Here are a few questions that will help you frame the problem at hand:

• How much do you need to transfer?
• How often will you be making payments?
• What time frame you need the funds to be delivered?
• Is it important that you transfer at the lowest possible cost?
• Do you need advice from a foreign exchange expert?
• Are you prepared to pay a little more for a personalised experience?
• Do you require to access to advanced tools such as forwards, options and market orders?

These questions are not too complicated, however, they will help you structure your thinking so you can identify the features that matter. For example, making a large, one-off payment for purchased equipment is very different from making regular payments to international contractors. A money transfer service that is fit for one purpose, is not necessarily optimised for another.

Once you’ve considered these questions, you’ll be in a much better position to dive into the various solutions out there. By taking a birds-eye view of the business money transfer market we can explore the common themes shared across services. This will serve you well in making a final decision.

What types of services can be used for business money transfer?

Generally speaking, the services that allow you to engage in business money transfer can be placed into three broad categories; peer to peer services, international payment specialists, and total payment solutions.

1. Peer to peer services

Peer to peer services are those that have been created to solve a very specific problem, often by utilising the latest technology. Instead of entering the foreign exchange market, where possible, these services aim to use their customer’s own funds to satisfy the requirements of other customers. They do not intend to be all things to all people, and that is why they can be very effective.

There are a couple of key features that separate a peer to peer service from the rest of the pack. First, they are designed for a limited purpose. For the most part, they aim to reduce transfer costs across a limited selection of currency corridors. They also use technology to their advantage, developing user-friendly online platforms to simplify the customer on-boarding process.

Generally speaking, a peer to peer service can complete the following transactions:

Spot contracts. A spot contract is a single transaction at the currently available exchange rate. It is the most basic form of payment there is. It involves a transfer of funds from one country to another, involving the exchange of currency. The payment can be made to a bank account owned yourself or a third party, depending on the circumstances.

Regular payments. A regular payment is a transaction that can be scheduled on a recurring basis. This can be suitable when you need to make the same transaction over and over again. For example, to satisfy mortgage repayments or an employment contract. Some services allow you to manage this process online, while others can arrange this after speaking with customer service.

Peer to peer services are predominately online only, which is ideal if you are comfortable with using technology in a self-directed way. They pay special attention to ensure that their product is clean and functional, and that there is plenty of phone support available. This business model allows them to perform transfers at the lowest possible cost, which often makes them market leaders in this area.

Of course, there are a few downsides. They are often limited in respect to what countries they can accept customers from, and what countries they can deliver funds to. Because these services achieve most of their efficiencies from establishing their own payment infrastructure, this leads them to focus only on popular corridors, at least in their formative years. Also, their transfer options are generally quite basic, so little advanced functionality is available.

Best for:

• The most competitive rates on the market
• Transacting along major currency corridors
• Completing transfers of almost any value
• Users who are comfortable with technology

Our favourite: TransferWise (review). The market leader in peer to peer payments, TransferWise is an innovative service led by an energetic founding duo, including one of the first employees of Skype. The service facilitates transactions at the mid-market rate, and they charge a low transparent fee. It has received a lot of praise from its customers and is supported financially by many well-known investors.

A good alternative: CurrencyFair (review). Headquartered in Ireland, CurrencyFair is a well thought out payment platform focusing on major currency corridors. They employ a technology-focused workforce who are attempting to make the transfer process as efficient as possible. Its cost structure is in line with the other peer to peer market leaders, and they are constantly building additional functionality for the benefit of their users.

2. International payment specialists

International payment specialists are effectively foreign exchange brokers who aim to provide a broad suite of money transfer products. They can advise on a range of advanced tools, such as forward contracts, options and market orders. Their services are perfect for commercial operations and those conducting large or complex transfers.

In most cases, an international payment specialist employs foreign exchange dealers to provide advice, as well as conducting trades on your behalf. In recent times, most of these services have also developed online platforms, so you can conduct simpler trades without having to speak with a dealer directly.

Generally speaking, in addition to spot contracts and regular payments, an international payment specialist can also complete the following transactions:

Forward contracts. A forward exchange contract allows you to lock in the current exchange rate for a payment which you intend to make at a later date. It is an advanced tool used to hedge against future movements in the market that may be to your detriment.

Options. An option is an advanced tool that provides you with the right, but not the obligation, to purchase a specified amount of foreign exchange in the future. It often requires the payment of a small premium to acquire the option and is useful when there may be a need for foreign currency in the future.

Market orders. A market order allows you to set a preferred rate that you might like to buy or sell currencies at, in the future. It is essentially an alert that will notify you when a currency pairing reaches a specified rate. You then have the ability to enter into a transaction at that rate, or some services can even do this automatically on your behalf.

The greatest benefit of using an international payment specialist is probably being able to speak with a professional dealer. If you prefer, they can hold your hand through the process and ensure that you are aware of all your options before you commit. Many services use an existing payment infrastructure, such as SWIFT, which increases the number of destinations that you can transfer your funds to.

However, with extra personalisation and attention comes an additional cost. When compared with peer to peer services, you’ll find that international payment specialists are slightly more expensive. This is partly due to the advanced products they offer, and also due to their use of the SWIFT payment network.

Best for:

• Medium to large transfer values
• Those who would like tailored advice
• Making payments to a broad selection of countries
• Advanced tools and risk management strategies

Our favourite: HiFX (review). A service with a lot of experience in foreign exchange. HiFX provides their customers with a personalised experience and can facilitate transfers of any amount. They make payments into over 170 countries around the world, and funds are transferred at competitive rates. Their online platform is robust, and advanced tools can be accessed by speaking with their dealer desk.

A good alternative: Currencies Direct (review). This London based service offers a broad range of foreign exchange products. While its website is rather limited in functionality, the service does employ well-qualified dealers who are more than happy to advise you on your requirements and transact with the markets on your behalf.

3. Total payment solutions

The final type of service for business money transfer that you should be aware, is what I’ll call a “total payment solution”. A total payment solution offers most of the features offered by an international payment specialist, with a few additional bells and whistles. They have gone to extra effort to include as many tools as possible, for businesses that are conducting cross-border transactions.

While these two types of services do overlap to a degree, I’ve done my best to separate them out. The main difference is that they have usually established corporate entities in a more than one country, as not have complete reliance on existing payment infrastructure, such as SWIFT. They can also hold your funds on trust, which makes them part foreign exchange broker, part bank, without going to all the compliance effort of actually becoming a bank.

Generally speaking, in addition to the payment types offered by an international payment specialist, a total payment solution may have one or both of the following capabilities:

Multi-currency accounts. An ability to establish virtual bank accounts for you in foreign currency denominations. This is most useful for entrepreneurs and businesses who accept payments from various parts of the world. A multi-currency account is a useful alternative to having a fully fledged foreign bank account in another country.

Bulk payments. If you would like to make mass supplier payments or refund a group of customers, a bulk payment solution is your answer. Many services allow up to 500 recipients to be paid by uploading a CSV file and confirming the entire transfer with one instruction.

A total payment solution is a great option for those businesses who manage overseas operations, whether it be accepting revenue from other countries, or managing payments to vendors and suppliers. These are very useful features to have in a product, and as the internet continues to mature, I think we’ll see more services begin to offer similar capabilities.

Best for:

• All the benefits of an international payment specialist
• Sending and receiving payments in multiple countries
• Making payments to a large volume of recipients
• Streamlining complex requirements into a simple solution

Our favourite: OFX (review). As a publicly listed company, OFX is one of the market-leading money transfer services in the world. They aim to provide truly global business money transfer solutions. While not the cheapest service available, the breadth of services offered by OFX is second to none. A thorough solution for small and medium businesses conducting trade internationally.

A good alternative: WorldFirst (review). A reliable service for business money transfer. Competitive rates, advance foreign exchange tools, and a broad selection of international offices, allow the company to provide a consistent experience to its customers. WorldFirst offers a high-quality online platform which facilitates transfers, as well as provides access to market research and commentary.

Comparing services to select the right one for you

By referring to the categories listed above, you should now have at least an idea of the services that can help you with business money transfer. It’s important to recognise, however, that each service within a category can vary greatly.

Here are nine basic questions you should ask yourself before signing up:

1. Is the service transparent about what they do?
2. What currencies does the service support?
3. What is the overall cost of a transfer?
4. Is the transfer speed acceptable?
5. Does the service offer the required features?
6. Is customer support easily accessible?
7. Is the service safe?
8. Is the service reputable?
9. Is the service easy to use?

Before getting too excited and jumping straight in, you should try to compare a couple of services against each other. That way, you will reduce the chances of being disappointed later on. If you’d like to know more about what to look for, check our guide on how to compare money transfer services.

Signing up with your chosen service

Once you’ve chosen your preferred service for business money transfer, it’s time to sign up. Each service has a slightly different registration process, but for the most part, they have similar requirements. First, you need to visit their website and sign up using an email and password. Shortly thereafter, you’ll need to provide the service with your contact information, such as address, phone number, and often some indication of the foreign exchange capabilities that you would like.

Most services will require that you provide an assortment of documents to verify your identity, your business’s registration, and your eligibility to use the service. This is in line with the standard Know Your Customer (KYC) procedures that financial institutions are required to comply with. Nevertheless, whichever service you choose, you should be up and running within a day or two.

Making your first transaction

Following registration, making your first transfer should be quite simple. If you are comfortable with transacting through an online platform, simply log in to their website and follow the instructions presented on the dashboard. If you are transferring a larger amount or have complex requirements, it may be best to contact their foreign exchange desk to have a dealer conduct the transaction on your behalf.

After your transaction has been initiated, most services will keep you updated via email as the payment makes its way to your recipient. The status of each transaction should also be able to be viewed on the dashboard. Eventually, you will be notified that your funds have been received by the service and will be delivered shortly. It usually takes a day or two from this point to see the funds reflected in your recipient’s bank account.

Conclusion

In this post, we’ve gone through the process of identifying your requirements when searching for business money transfer solution. We have identified that foreign exchange services for commercial organisations can be split into three broad categories; peer to peer services, international payment specialists and total payment solutions. Each type of service is structured slightly different, in terms of the features that it offers and its cost.

By referring to these categories, you can more easily pinpoint the types of services that will be helpful in achieving what you need. We have also provided you with the criteria to compare each service against one another. This will help you narrow your search to a service or two, whereby you can commence the sign-up process and complete your first transaction. By following these steps, you are more likely to be happy with your overall experience.