How can I get the best possible exchange rate as a private individual?

If you find yourself in this situation, you’re probably wondering how to get the best exchange rate from your financial advisor, so you can make your money go further. You’ll find the answer in this article!

Find out how to get the best possible exchange rate, optimise your currency transfers and avoid the pitfalls of the foreign exchange market.

What is the current exchange rate?

The first question you should ask yourself, if you want to get the best possible exchange rate as a private individual, is what the reference exchange rate is for the currencies you are interested in. In other words, you need to know the current actual exchange rate.

To do this, you need to be aware of the interbank rate, also known as the ‘intermediary market rate’. As the name suggests, this is the exchange rate at which banks lend money to one another; it is therefore determined by the law of supply and demand.

You can monitor the constant fluctuations in this interbank rate in real time on the leading financial data websites (such as TradingView or Investing), making it easy to find out the current exchange rate.

With this information, you will then be able to calculate the margin charged by your financial intermediary and thus determine whether or not they are offering you a favourable exchange rate.

Where can I exchange money at the best rate?

Once you have a clear understanding of the interbank exchange rate for the currency you’re interested in, you can then compare the various options available to you. 

There are several types of financial intermediaries that may offer you foreign exchange services, including:

• traditional banks;
• currency exchange bureaux;
• online currency exchange services such as b-sharpe.

As a participant in an Over-The-Counter (OTC) market – that is, a non-standardised over-the-counter market – you should be aware that each intermediary sets its own margin in order to earn a profit on your foreign exchange transactions.

Consequently, the margin applied can vary significantly depending on the intermediary chosen, the amounts to be converted and the currencies involved. Whilst margins may fall below 1% for the most common currencies, they can also reach as high as 5% for the most exotic currencies!

At present, it is specialist online services that offer the lowest margins (whereas traditional banks offer the highest). It’s up to you to play these different providers off against one another by approaching several of them.

Good to know: The margin and the final rate obtained are obviously not the only factors to consider when looking for the best exchange rate; the overall quality of the services offered by your broker is also important (particularly the speed of execution and the option to secure a fixed, guaranteed exchange rate).

How can you tell if the exchange rate is favourable?

Whilst new currency exchange providers do indeed offer the most competitive rates, not all of them are equally transparent about the services they provide. Hidden fees, tempting promotional offers… To get the best possible exchange rate, you also need to be able to spot the pitfalls of the market.

Avoid hidden charges

To ensure you get the best rate, choosing the most transparent providers is undoubtedly the best course of action. Indeed, many players in the foreign exchange market present offers that are relatively opaque, which in reality contain hidden fees that could significantly increase the cost of your transactions.

Traditional banks, in particular, often take advantage of their dominant position and the trust this naturally inspires in their customers to widen their spreads as much as possible or even to charge ‘processing fees’ on each of your transactions. You should therefore be particularly vigilant when it comes to the total cost of your currency exchange transactions!

Be wary of sales offers

Another pitfall to avoid if you want to get the best possible exchange rate is a promotional offer. Offered by many financial intermediaries in the foreign exchange market, these offers appear to allow you to benefit from a particularly favourable rate. However, the attractive rate actually only applies to your first foreign exchange transaction.

In fact, whilst introductory offers may well be good deals at first, this is generally not the case for subsequent transactions; the rates charged by your broker become far less attractive. As you will have realised, this is purely a marketing ploy designed to attract customers…

Should you try to beat the market to get the best exchange rate?

In your search for the best rate, you might well be tempted to speculate on the foreign exchange market…  

Indeed, as exchange rates fluctuate constantly on the Forex market, it is possible to secure more or less favourable rates depending on market conditions. 

These vary depending on a wide range of factors, such as: 

• the economic climate;
• central banks’ monetary policy;
• the time of year;
• investor behaviour…

You might think that, with a little knowledge and by keeping an eye on the market, you could probably capitalise on these fluctuations to make substantial savings… However, this is not the case: speculating on the foreign exchange market is particularly risky.

Between market volatility, competition from professional investors, and the high risk of financial loss inherent in speculative trading, attempting to beat the foreign exchange market yourself in order to maximise the profitability of your currency transactions is almost certainly a bad idea.
Professionals do, of course, venture to make exchange rate forecasts, but these should always be taken with a pinch of salt.

Can we get a better exchange rate by selling on a forward basis? 

Offered by many banks, forward contracts may seem attractive at first glance: they allow you to lock in an exchange rate in advance for your future currency transfers, for a predetermined period, which usually spans several months. This means that, regardless of any fluctuations in exchange rates during this period, you know your budget in advance.

However, this service and security come at a significant cost. In fact, you will generally have to pay an administration fee and face higher margins charged by your intermediary. 

In most cases, therefore, you will not end up getting a better rate than if you had carried out your currency exchange on a spot basis. Not to mention that such a forward contract significantly reduces your flexibility should you ever face an unexpected financial situation…

Finally, influenced by the marketing campaigns of the market’s leading brokers, you may also be tempted to use more complex financial products, such as currency swaps or futures contracts. 

However, as well as being considerably more difficult to manage on a day-to-day basis, this type of product may lead you to speculate on the forex market without meaning to, and therefore carries quite significant risks.

To conclude, if you want to get the best possible exchange rate as a private individual, the best course of action is to check the reference exchange rate for the currencies you are using beforehand. 

Once you’ve got this rate in mind, consult online currency exchange specialists (who offer the most competitive margins) to identify the best deals, whilst shopping around and remaining wary of offers that seem a little too good to be true. 
If you’re a cross-border commuter between France and Switzerland, don’t hesitate to find out about the 5 mistakes to avoid when exchanging your Swiss francs for euros!

FAQ:

What are the different types of exchange rates?

The two main types of exchange rate are the ‘spot’ rate (or ‘cash’ rate), which refers to the exchange rate offered for an immediate conversion (within one to two days), and the ‘forward’ rate (or ‘forward’ rate), which refers to the exchange rate offered for a conversion at a later date.

What constitutes a good exchange rate?

To find out whether an exchange rate is favourable or not, you can compare it to the reference rate or ‘interbank rate’ (the rate at which banks trade with one another, available on all financial data websites), and thus determine whether the margin charged by your financial intermediary is high or not.

How can I avoid paying currency conversion fees?

Unfortunately, it is impossible to avoid paying currency exchange fees entirely when trading in foreign currencies. However, you can significantly reduce these costs by using online currency exchange specialists, whose margins are much lower than those of traditional banks.