Whether you are new to forex or just need a refresher on the basics, here are some of the most commonly asked questions about global forex transactions.
1. What is a forex money transfer?
Forex stands for foreign exchange. Simply put, a forex transfer is an international money transfer from one account to another, in a different currency, facilitated through a bank or forex provider.
2. What is the difference between forex trading and forex transfers?
When people hear the term “forex”, they often think of forex trading. Forex trading is the buying and selling of different currencies with the main aim of making a profit by speculating on future prices, placing trades and exiting trades according to a specific trading strategy. Conceptually, it is very different from global money transfers.
Unlike foreign exchange trading, a global money transfer service does not aim to make profits by buying and reselling currencies. Instead, a forex transfer is a banking service that enables the transfer of money from one country to another.
Some examples of where a forex transfer would be used are a business settling an overseas invoice or an individual sending money back to a family member in another country (also known a remittance). This contrasts with forex trading, which does not provide genuine international service and rarely involves cross-border aspects.
3. How do I transfer money to an international bank account?
When transferring money abroad, you have two options. You can either make use of a bank or a specialist forex provider.
If you want to transfer money through a bank to another bank account in a different country, you need to make a wire transfer. This is done using the interbank SWIFT (Society for Worldwide Interbank Financial Telecommunication) system, which enables the secure transmission of information, including financial transactions, between banks. While wire transfers are generally easy and secure, banks often charge large fees for sending and receiving funds this way.
International money transfers offered by specialist forex providers deliver the same service at a more affordable rate and with a faster turnaround time. As it is their primary business, as opposed to banks, which have other priorities, they are able to offer dedicated customer support and an enhanced user experience.
4. How much does forex cost?
Transaction costs for global money transfers vary depending on the broker, the size of the transfer and where the client is located.
Banks typically charge a flat processing fee of $15 to $30 for the service of sending money abroad and charge a "foreign exchange spread", an implicit charge. This markup is calculated as a percentage of the value of the transfer, usually 2%, and is considered a commission for facilitating the currency exchange. Individuals are often unaware of the extent of the charge. Forex specialists compete on the forex spread by offering a commission, known as a margin, that exceeds the bank's cost. For example, if the bank charges 2%, a forex provider might charge 0.5% - 1%.
Forex brokers can provide a more cost-effective service to their clients by using multiple local bank accounts around the world, rather than using the SWIFT network. In this way, they can mitigate the foreign exchange exposure and hidden costs of settling international transfers in multiple currencies.
5. Why is it better to use a money transfer company rather than a service like PayPal?
PayPal was created by Elon Musk as an alternative to the standard forex provided by larger banks. In a sense, PayPal is very similar to a specialist forex provider in that they too wish to innovate in the foreign payments space.
However, PayPal is better suited for those who wish to make multiple retail payments abroad, from a single account. This is like holding a multi-currency debit card that can be functionally used to make payments to someone, regardless of which country they are in. While convenient for the person making the payment, PayPal charges large transaction fees to businesses and individuals receiving payments, in addition to charging for currency conversion.
A forex transfer is a direct payment to an individual or business. The forex provider will secure the currency exchange at a more favourable cost and pay the foreign currency directly into the receiving party’s bank account.
If you are someone that is looking to do a lot of online shopping from different countries, then PayPal is a convenient solution. However, if you are looking to move a sum of money to a foreign country, for yourself, your family or your business needs, then a specialist forex provider will be the best option, especially for larger and more frequent payments.
6. How are exchange rates determined?
The interbank rate, also known as the mid-market exchange rate, is the current exchange rate at which larger banks are trading currencies with each other. This rate is continually changing due to the supply and demand for each currency.
All forex dealers will receive a similar rate from their provider, which is sometimes known as their “buy rate” – the exchange rate at which they can buy the currency, in the live market.
To determine the exchange rate that is offered to an individual, a “commission spread” is deducted from the live exchange rate. This spread varies from 0.30% - 3.0%. Generally, larger banks will charge a larger spread, since they can do so. A small number of banks hold a large portion of the market share.
Consider the following example:
Someone sells their house in the UK and moves to the US. They wish to transfer proceeds of £300,000 to the US and convert it into US Dollars.
Current mid-market exchange rate = GBP/USD 1.1300
After deducting a 2% commission, the person will be offered a rate of GBP/USD 1.1075 On the transfer amount, they would then receive $332,250
Forex providers will attempt to undercut the larger banks, to provide a cost-saving service. Using the abovementioned example:
After deducting a 0.5% commission, the client will be offered a rate of GBP/USD 1.1240 Therefore, the person would then receive $337,200
This illustrates the savings of $4,950 which is hidden within the exchange rate.
Read more about how currency exchange rates are determined.
7. Which countries am I restricted from sending money to?
The constraints of a currency are strongly influenced by supply and demand. Simply put, people who want to buy a currency increase its exchange rate, while those who want to sell it make it fall.
When an economy is in trouble, a government can restrict the sale of its currency to inflate its value artificially. Restricting international currency exchange prevents capital flight or the massive withdrawal of a currency from a market. This means that investors cannot withdraw funds from a country without first exchanging the local currency for the currency of another country. There are also instances where limiting access to foreign currency is a political decision.
Restrictions change all the time and there are a substantial number of countries on the restriction list – The largest being Russia, but there are also many in Africa, South America, the Middle East and Asia.
8. How long does it take to transfer money from one country to another?
The speed of money transfers depends on both location and provider. Forex providers are increasingly moving closer to offering 24/7 payments that are processed on the same day. This can easily be the case if you are sending to and from major destinations.
Most banks recommend a period of three business days for international payments to be received. Our forex team is usually able to process payments in as little as two working days.
9. How can I make sure my forex transfers are secure?
Protect yourself from fraud and scams by always doing a thorough check on a forex provider before you engage their services. Search for reviews online and, if possible, speak to someone who has made use of their service.
Forex providers require certain personal documents from you to remain legally compliant (for example, to prevent money laundering). Ensure that the forex provider you choose has taken all the necessary steps to guarantee that your personal data is stored securely.
Your provider should also offer security features, such as two-step verification, to prevent hackers from accessing your accounts.
A legitimate forex broker will keep your funds in segregated client accounts and will never ask you to transfer money into personal accounts.
Sable International has stringent security measures and is fully accredited, licensed and registered with all the necessary regulatory institutions.
10. What are the risks associated with sending forex?
For the most part, forex transfers are guaranteed to go off without a hitch. However, payments get stuck, people give false information, and other errors occur.
How many times have you received a phone call informing you that you won a monetary prize, but you need to provide your bank information first so that the money can be transferred to you? This is an example of a con artist asking you to provide sensitive information. Deals or opportunities that seem too good to be true usually are. A good way to protect yourself against scams like this is to avoid sending money to individuals you don't know well.
To avoid mistakes like transferring money to the wrong account, confirm someone's account details before sending them money. If you want to pay an overseas supplier, check their credentials by talking to their directors and checking their business registration. Avoid sending large amounts of money at once if you need to send money to someone you haven't met.
Maintain strong passwords, install security software on your computer, keep an eye out for any unusual bank transactions and use a reputable and secure specialist forex broker.
(Contribution by Chris Gulle)
Need to do an international money transfer? We can assist you. Contact our forex team on email@example.com or call +44 (0) 20 7759 7554 or +27 (0) 657 2153.
Sable International is a fully regulated and registered financial services provider in South Africa, the UK and Australia.
We are a professional services company that specialises in cross-border financial and immigration advice and solutions.
Our teams in the UK, South Africa and Australia can ensure that when you decide to move overseas, invest offshore or expand your business internationally, you'll do so with the backing of experienced local experts.