Updated: Nov 10, 2021
In an industry run on variable charges and exchange rates were going to show you how fixed margin can help you know exactly where you stand.
The foreign exchange market is a crowded and confusing place. If your a company is involved in import or export most likely you receive calls propositioning your FX business on a weekly or if not daily basis. Now with over 300 brokers of foreign currency registered in the UK how do you know who will give you a good price and service?
Just like any other wholesale industry foreign exchange companies buy at a wholesale price and sell to their customers at a lower price than they buy to create their margin/profit. Their goal is to sell to you at a rate which saves you money but likewise retains enough margin for themselves to make a profit. Most of the time the provider themselves will not have a price that they give to all their customers (like its commonly perceived), it will be down to you as a business and the margin that you were previously on before you signed up with this new provider. A common tactic by banks is to disguise their margin by charging wire fees, this is the amount you might be charged for every transaction you do which can range from £5-£40. This gives you as a business the perception that is all your being charged, in reality the price your paying is much higher.
The industry itself is run on high bonuses and commissions for sales staff that bring you on as a client, it is not in their best interest to give you the 'best rate' because they will be taking money out of their own pocket. They want to give you a rate that is just good enough to keep you as a customer but still retaining an nice bit of profit for themselves. We have seen this all to often where a company might be on 2% spread for example and a provider will come in and offer them a spread of 1.5% which is slightly better than they are currently getting but in reality they could offer a lot better rate than the one they are showing. Have you ever wondered why when you are being propositioned for your foreign exchange business your always asked a bundle of questions in regards to how you currently trade? This is so they can get a picture of what you are being charged so they can win your business by slightly undercutting your current provider.
This is why a model of variable rates work perfectly for providers, it allows them the flexibility to change their foreign exchange rates at a moments notice to take an extra bit of profit when they see it available. From first hand experience in the industry we know that providers will take advantage of certain instances which allows them to do this, whether there is market volatility or they think that you are not checking the exchange rates.
So how do you keep track of this? As a business you have most likely got more to be focussing on than watching the rates and making sure you are being quoted the right price. This is where fixed margin comes in. Fixed margin is an agreement with a provider that they will quote you the same spread from the market every time you do a transaction, whether its a small transaction or unusually large this will always remain the same. This allows you to get on with running your business whilst also having the piece of mind that you know exactly where your costing on your foreign exchange transactions. Say for example if you gain a fixed agreement with a provider that they would only charge you 0.3% spread on your transactions, this would mean that every single payment you put through them would only be charged 0.3% and no more. This enables you to a lot more accurately know exactly how much a product or service is going to cost you or likewise how much funds you are going to get in from selling your product or service.
We leverage our industry experience and contacts to be able to gain these agreements with providers for our customers, we know where this can be done and where it can't and what providers can offer what fixed margin deals to different types of businesses with different needs. Here at Funding Routes we help get that usually taken by your provider back into your cash flow where it should be.