FX Providers’ Biggest Secrets Finally Revealed: Part One
We like to keep things simple, not only because it makes things easier, but also because FX is an industry that all-too-often relies on deliberate over-complication in an attempt to hoodwink customers.
Currency exchange providers are astonishingly under-regulated, allowing an alarming number to rely on tactics to misleadingly attract your custom and surreptitiously impose hidden fees on your transactions.
That’s why – like a much less creepy version of that Masked Magician from the TV show Breaking the Magician’s Code: Magic’s Biggest Secrets Finally Revealed – we’re breaking ranks to expose the sneaky tricks some FX providers use to chisel money from their customers.
Here are the first three, in the first instalment of our three-part series:
1. ‘Commission Free’
This one’s a full-on classic, as applicable to small business FX transactions as it is to your pre-holiday currency exchanges. Although a provider may seductively claim that they are charging no commission on your exchange, they are inexplicably allowed to bury their charges in the spread (the difference between the price at which they purchase a currency and the price at which they sell it). Essentially, they will inflate the price at which they sell you the currency, thereby profiting from your loss.
2. Fixed Margin Offer
Some FX providers will offer a fixed margin on their spreads, and will usually stick to this for the first few transactions that you make with them. However, it is a common – and somehow permissible – practice for FX providers to stray from the fixed margin after a few transactions, widening it as the client becomes comfortable and starts paying less attention to their exchanges. The FX providers squeeze a profit by encouraging and then abusing their clients’ trust, to the point where they can effectively start raising their prices without the client noticing.
3. The ‘best rate’
This is essentially a fishing expedition. There are brokers who say they offer the ‘best rates’ on currency exchanges, but are quite ready to adjust their rates for customers who shop around and find better quotes from alternative providers. There are two things to be learnt from this:
a) They weren’t offering the best rate in the first place
b) They are counting on some clients not shopping around, and being able to charge them the original – grotesquely inflated – rate.
To be clear, we know that not all FX providers are guilty of these practices, but we also know that they do occur and we want to raise awareness in the wider market.
Tune in tomorrow to find out how limit orders and cold calling can be exploited to eke disproportionate profits from FX customers.