FX Providers’ Biggest Secrets Finally Revealed: Part Three
Small businesses and entrepreneurs lose billions every year to hidden charges on their currency exchanges and international payments, and must navigate a litany of psychological tactics intended to frighten them into unfavourable rates every time they get a quote.
freemarket looks forward to a time when FX customers are offered fair, transparent rates without any of the double talk or inflated charges currently allowed by lax industry regulation. Until then, all we can do is promise our customers equitable, straightforward and consistent FX transactions – for a low, fixed 0.2% fee.
That, and point out a few more ways that other FX providers might try to bamboozle you.
7. Quoting the mid-market rate
Some unscrupulous sales teams and brokers will quote the mid-market rate simply as a ploy to rope people into setting up an account with their company. Once the account is open, however, there is nothing to stop the provider from adjusting the spread to guarantee themselves larger profits on the exchange.
The chances are that the client – too busy or too trusting to notice – will lose money to this broker, who heavily undercut other companies offering realistic quotes when the client was originally reviewing FX providers to register with. If a client then notices and questions the rate change or wider spread, the broker might try and fob them off with a tale of an exaggerated market movement by way of explanation.
Simply put, brokers are unable to offer the mid-market price on an exchange. (Sidenote: freemarket aims to achieve the mid-market price on every single one of our clients’ exchanges.)
This is particularly insidious; self-serving manipulation masquerading as well-meaning guidance plays a part in many of the tactics covered in this series. Any prescriptive advice is suspect, as no one truly knows whether the market will move up or down. All that a scrupulous FX provider can offer is an outlook for both eventualities, along with an idea of what any particular movement could mean in added cost or profit for a particular trade. But all too often, brokers will adopt whichever position is likely to get the client behaving the way they want them to, and there is a sense that this applies to banks as well; almost 50% of SMEs in a recent survey claimed to have received financial advice from banks that negatively impacted their business.
9. Killing time (and confidence) with quotes
When a client has several brokers on their books, some of these brokers will have an unwritten rule of ‘never showing their hand first’ and directing clients to obtain quotes from competitors that they’ll guarantee to beat. Any variation of the phrase “I’ll beat whatever they offer” should set alarm bells ringing. Essentially, it’s misdirection.
In the time that the client is asking for other quotes, the market could move in one of three ways, and the broker has a plan to profit from each.
- Market moves up. If the client doesn’t notice this, the broker provides same quote, thus making more profit.
- Market moves sideways. Broker gives the client a slightly better rate to try and secure the rate then and there, and win the business.
- Market moves down. Broker will claim that the latest exchange rate quote has moved down ‘inline’ with drop, but may claim that the market has moved lower than it actually has. By this time, the client is fed up with fall in the exchange rate quote and making phone calls, so secures the transaction – on a worse spread margin than the original call.
Whatever happens, the broker is out to make additional profit from the client and will try and increase the spread no matter which way the market moves.
10. Holiday hornswoggle
Brokers – in some cases – love to corner clients when they’re unable to get on the internet or are in a rush. Be especially cautious during any phone call you have with your provider while on a beach, on the move, driving, in a bar, or when you’ve got a call waiting on the other line – any time you don’t have access to live market rates. A certain type of FX provider will opportunistically seize on these moments to increase their spread without being caught, or pressure you into making an unwise snap decision.
As a result of the wide array of shenanigans conducted in the name of currency exchange, it can feel almost impossible to get a straight answer. This is why many companies keep multiple brokers on their books – because they need to shop around for the best quote and there is no other way of obtaining it immediately.
The cost in time is dauntingly huge for businesses’ Chief Financial Officers and Financial Directors, their teams spending hours trying to untangle the manipulative double talk and mind games that constitute the process of attempting to secure a fair rate.
If only there was a way of communicating the fact that all anyone really needs for a more straightforward, consistent and fear-free currency exchange experience is a service that offers a fixed and fair margin.
A service like freemarket, for example.