Foreign exchange: Get the best deal

Businesses that are importing or exporting can now choose from a wide range of providers, both bank and non-bank, for their foreign exchange transactions.

Despite this increased level of competition, independent information provider KISS Market Info recommends you follow some simple steps to negotiate a fair deal for your business and ensure that it is being delivered.

Shop around for the best deal for your foreign exchange transactions. It is now easy to use a provider other than your main banker if necessary. Get the provider to agree in writing on what ‘margin’ they will take on your transactions. ‘Margin’ is the difference between the market exchange rates where banks deal with each other, and the exchange rate you get for your deals.

Just taking the time to do this could easily halve the margin being taken on your foreign exchange deals, saving you significant money if your foreign exchange turnover is more than A$1 million per year.

Check where the market rate is just before you ask for your rate. This is so that you can tell whether or not your provider is only taking the agreed ‘margin’. This is the best stage at which to check that your provider is delivering what they promised.

There are a number of websites that show regularly updated market exchange rates for ‘spot’ deals for free, for example, www.xe.com updates rates every minute. ‘Spot’ deals are where you buy or sell a foreign currency for delivery within two business days. The Exchange Rate Service from KISS Market Info will also update spot rates for you at least twice a day by email, and more if the market moves or key news is released.

What do you do if the market ‘spot’ rate showing for the AUD/USD rate is 0.8640, the ‘spot’ rate from your provider for you to buy USD is 0.8600, and you have an agreed margin of 20 points? Do not proceed. In this example, your provider is taking 40 points in ‘margin’ instead of 20 points in ‘margin’. Tell your provider immediately that they need to fix their pricing and then try again.

Similarly, you need to know where the market rates are just before you use a Forward Exchange Contract or currency option product to lock in a rate for delivery at some future date beyond two business days. These market exchange rates are not readily available on any free websites and your provider may be able to take some extra ‘margin’ without your knowledge. However, KISS Market Info does make this information readily available to its subscribers.

For subscribers only, the KISS Market Info website at www.kissmarketinfo.com provides regularly updated market forward rates for the AUD against the various key currencies. Plus subscribers can get additional expert and personalised assistance to check any pricing from a provider for a particular transaction – on request, for no extra charge.

Take extra care if your business uses overnight orders to buy or sell foreign currency at a particular rate. You really need to check the overnight highs or lows in the market exchange rates when you start work in the morning. Then, if necessary, contact your provider if your order has not been filled when it looks like it should have been. KISS Market Info can help you out here by giving subscribers the exact highs and lows over any period.

Merryl Swan is founder and managing director of KISS Market Info, which provides daily information and support by subscription on exchange rates and interest rates. Go to www.kissmarketinfo.com to arrange your 30-day free trial.