Peer to peer currency exchange platforms are the upstart rivals to established currency brokers.
This form of exchange works by anonymously matching people who want to swap complimentary amounts of foreign currency. For example, if Mike in the UK wants to exchange £5000 into Euros it could match him with Julio in Spain, who is looking to exchange an equivalent amount of Euros into pounds.
How do peer to peer currency exchange services differ to that offered by brokers – and how do they compare head-to-head?
This is one of the big sells for peer to peer foreign exchange companies. They often promise significant savings with low headline commission rates. It pays to read the small print carefully though, as commission levels can vary depending on the amount exchanged. So in practice users can pay much more than the headline rate.
Quality brokers either give you a clear no-obligation quote, or for larger amounts won’t charge commission at all.
Most peer to peer currency exchange providers use the Interbank buy and sell mid point rate, which is often better than the rate offered by banks.
Brokers use their in-depth knowledge of the currency markets to help their customers exchange at the best possible point.
Even peer to peer platforms admit that their exchange services take between one to four days to complete, and their hours of service can be restricted by the banking hours where they are located. This is caused by transferring the money between several different accounts.
In contrast brokers are able to exchange money much more swiftly.
Currency markets can be confusing, and by offering a simple exchange contract peer to peer currency exchange can seem easier to understand. This is particularly true for users who are used to making international bank money transfers.
However, these simple one-time transfers might not be the best fit for everyone’s situation. Brokers are able to execute a wider range of foreign exchange contracts. This include Forward (fixes rate for up to two years), Limit (waits for when rates hit a desired point) or Stop Loss (exchanges are not made when the rate dips below a certain point) Contracts. For some users, these offer much better value for money.
One reason that peer to peer currency exchange platforms can offer low rates is that the customer does a lot of the work, from signing up to required bank accounts to performing the transfers. Although they tend to have advisors on call to help talk users through the process, they generally won’t be able to offer detailed advice tailored to the user’s individual situation.
Currency brokers employ experienced currency traders who can give personalised advice to their clients. Once the client signs the agreement and makes the initial transfer, their work is done.
The availability of currencies varies between peer to peer platforms, with some only offering exchanges in US dollars, pounds Sterling and Euros. This is because they need to make sure that they have enough people to be able to match prospective exchangers.
In contrast, brokers have access to a wide range of currencies through global markets, making them invaluable for those looking to exchange smaller currencies.
To access most peer to peer currency exchange services users need to not only sign up for an account with the platform, but sometimes also a specific bank or money transferring service. This can be somewhat laborious and, in the long-term, these accounts could have security vulnerabilities.
A reputable broker just requires their clients to make the transfer into a dedicated client account, which is maintained by the brokerage, which simpler and more secure.
Anyone considering using a peer to peer currency service needs to be aware of how secure their deposit is. Although the best platforms are authorised by the Financial Conduct Authority (FCA), only money held in UK-regulated current or savings account is covered by the government backed compensation scheme which guarantees deposits of up to £85,000.
As well as being FSA-authorised, good quality brokers keep your money in a British bank account, display their credit rating and use Irrevocable Payment Documents (IPDs) so a client’s money can be tracked at all times through the exchange process.