How to make the foreign exchange market work for you

Different contracts for your international money transfers.


The foreign exchange market is notoriously complex with exchange rates changing by the second. If you're sending money overseas you will need to think about protecting your money from rate changes that could leave you worse off, alternatively you might want to seize opportunities to benefit from market movements.

Whatever it is you want, there are various methods of protecting yourself and ensuring big savings on your international money transfers.

The Irish Times International Money Transfer Service, provided by exchange experts Moneycorp, will not only secure you better exchange rates than those offered by your bank, but also contracts on your transfers that can fit around your needs.

There are 3 main contract types; spot contracts, forward contracts and market orders. You can save hundreds, even thousands, with all three, but they offer different benefits and it is worth understanding this before you make a transfer, so you can ensure you get the best deal possible.

With Moneycorp every client is assigned a personal account manager who will help you use these contracts to secure the rate you want. They will explain your options in plain English, not technical jargon.

Spot contracts
A spot contract is perfect for making one-off or ad-hoc payments overseas. You will receive whatever the exchange rate is on the day, so if you think the rate is favourable, all you have to do is call up your dealer and make a transfer, or if you'd prefer you can do this 24/7 online.

Typically, a spot contract saves around 2% compared to making an international money transfer with a high-street bank, and the fees are much lower.

Forward contracts
Forward contracts allow you to secure today’s rate for payments up to 24 months in advance. Forward contracts are useful as they protect you from any changes in currency movements.

A good example of when to use a forward exchange rate would be; if you bought a property in the UK over the last year with the value of around £500,000. You paid a deposit and signed a purchase agreement in mid-March in 2013, when the euro exchange rate was £0.88. Completion of the purchase was not scheduled until December 1st 2013, when the remaining balance was due.

However, over the summer/autumn of 2013, sterling strengthened against the euro, meaning just prior to the purchase the exchange rate was £0.83. On the day the purchase agreement was signed, the price would be equivalent to €568,000. However, by December you have to pay €602,000 – a difference of €34,000.

If you had used a forward contract, and locked into the favourable exchange rate available in March, you could have saved tens of thousands of euros.

Market orders
A market order is a way of securing an exchange rate that you want that isn't currently available. You target a rate and when your targeted rate is reached, your exchange is made automatically – even if it is in the middle of the night, as markets are monitored 24 hours a day.

A market order is useful if you think you could stand to benefit from market movements and don't need to make a transfer immediately. It is worth considering if the rate is particularly unfavourable.

Market orders are further divided into "limit orders" and "stop loss" orders. Limit orders allow you to set a target upper rate for your transfer. A stop loss lets you set a minimum you'd be willing to exchange at, so you can avoid being caught out if the market moves against you. Stop loss and limit orders are often combined so you have a floor and ceiling on your transfer.

Your personal dealer will be able to give you guidance on rates that you could achieve within your desired timeframe. You can have daily market briefs delivered to your inbox every morning, to keep you up to speed with the foreign exchange market movements.