📖 What is a Currency Broker?

A currency broker is a type of foreign exchange company.

A currency brokerage exchanges currencies on behalf of its customers, whether that’s between a customer’s own accounts or transferring money internationally to a third party.

Currency brokers are typically cheaper and more specialised than banks.

Should I use one?

If you have a requirement to send money internationally, or transfer one currency to another, then you should consider using a currency broker.

There are a number of reasons why you should use a currency broker.

Currency brokers provide bank-beating exchange rates and offer a tailored service which is built specifically for sending money internationally.

You’ll be assigned a personal account manager and individual guidance is given for each customer’s unique situation.

What’s more, brokers offer currency hedging tools which can help to protect against exchange rate risk and provide more flexibility around the timing of your transfer.

Does a Currency Broker Buy or Sell?

Currency brokers will both buy and sell currencies on behalf of their customers.

Different brokers buy and sell different currencies so it’s worth understanding the currencies a provider can handle before you go through the hassle of registering.

As a general rule of thumb, the overwhelming majority of currency brokers will buy and sell most major currencies.

For an exotic currency, it’s worth investigating with a specific brokerage whether they can buy or sell it.

In some instances, it might be that they are only able to sell an exotic currency and they may not necessarily buy it from you.

How do Currency Brokers Make Money?

Currency brokers make most of their money from the exchange rate margin they apply to currency exchange.

This is the difference between the rate they receive from the bank and the rate they provide their customer.

Currency brokers can also make money from payment fees, though it’s quite common for brokers to waive these for personal customers.

The exchange rate margin is also sometimes referred to as the FX markup or FX spread.

Despite applying this markup, the idea is that customers still achieve a better rate from a broker than if they went directly to the bank themselves.

Brokers exchange high volumes of currency and receive lower ‘wholesale rates’ from banks, while individuals and SMEs receive more expensive ‘retail rates’.

The FX markup is a not-so-evident cost which is factored into the exchange rate. But it’s an important one to be aware of as it’s where most of the costs are incurred.

📖 Is Brokering Currency a "UK Thing"?

Across the world, big banks remain king of the currency markets.

JPMorgan, Deutsche Bank and Citi process the highest volumes, with the majority of FX traded by financial institutions such as hedge funds and pension funds.

Banks remain the go-to option for large corporates and financial institutions as the volume they are trading is so vast, banks will offer competitive spreads and a huge variety of hedging solutions.

These include things like currency forwards, swaps and even FX options.

Small businesses and individuals however are often mistreated by banks. There is little to no customer service,  international payment fees are unnecessarily high and FX spreads are extortionate.

Many of the major global banks are based in London, and, more often than not, it has been ex-bank staff identifying the opportunity to fill a major hole in the market that their employers were not. A premium FX service, complete with dedicated guidance and currency hedging tools, specifically for individuals and smaller corporations.

This is how the industry was born.

Most of the major UK currency brokers in London launched between the mid 90’s to mid 00’s when the barriers to entry were much lower than they are today. Regulation in particular was softer, making it more accessible for entrepreneurs to launch a currency brokerage.

With the UK gaining an early jump-start against other nations it has remained the global hub for currency brokers. 

In the past, brokers would have also been attracted to the UK due to EU ‘financial passporting’ rights, i.e. the ability to offer services throughout the EU by being registered and regulated by the FCA..

Leaving the EU and losing these rights has presented challenges for the UK but its reputation for world leading technology, regulation and security in financial services continues to comfort both currency brokers and their end clients.

London is traditionally the place where currency brokers conduct their business…

As the business centre of the UK, it makes sense, but things are starting to change.

There is a growing number of brokers which are headquartered outside of London.With Cornwall, of all places, proving to be quite popular as the home of TorFX and Key Currency.

Other brokers are located in Hertfordshire, Essex and Leeds.

Can UK Currency Brokers Onboard Clients From Other Parts of the World?

Until 2020, FX firms operating from the UK were able to offer international payment services to all EU member states.

As a result of Brexit, firms based in the UK lost access to the EU financial services ‘passport’.

The EU passport gives financial services firms authorised in their home state the right to conduct business in the EEA based on their home state authorisations.

Virtually all of the major currency brokers in the UK, such as Currencies Direct, have a long history of working in Europe and hold at least one other European office, meaning they still gain access to the EU passport through their European operations.

All established UK brokers can still on-board European clients.

Most of the large ones also have offices set up in North America, enabling them to take on Americans and Canadians.

Lastly, some brokers have licences in Australia, South Africa and Asia – and if they do, they can on-board customers from there.

Brokers who aren’t licensed in other international jurisdictions will only be only able to register British locals.

Registering With Currency Brokers is Easier From the UK

If you are a private client based in the UK, or a Brit based abroad who has dual citizenship and a valid home address in the UK, onboarding should be quite simple.

Most brokers have third party compliance tools which help them get customers from “enquiry” into “authorised to trade” instantly or almost instantly.

You just have to send a few basic things:

• Your name.
• An ID including a photo, usually a passport or driving licence.
• A ‘selfie’ taken from your phone camera.
• Your residential address (with accompanying proof) and date of birth.

If you are signing up with a currency broker as a business then you should know that the process will be longer.

These are the documents you will need to supply:

• The purpose of your transactions, i.e. are you paying staff, paying overseas suppliers, conducting FX for treasury purposes.
• Details of the type of business and industry you operate in.
• The source and origin of funds that’s used to settle your transfers.
• Copies of articles of association or, if applicable, recent and current financial statements instead.
• The expected level of trading that will take place, usually estimated volumes over a year.
• Identification and verification of 1-3 directors of the business and ultimate beneficial owners (known as UBOs – usually when they own over 25% of the business registering for an account).

If you are trying to sign up with a broker from OUTSIDE the UK, then you can expect a little more hassle.

They may ask you for additional things like notarising your foreign documents into English.Or, ask more questions about the source of funds and ask for further proof.

This should not deter you, though; if you need to transfer money, it’s definitely worth taking the time to get setup with the right provider.