How do FX brokers make money?
Currency brokers take on different names, including foreign exchange brokers, currency exchange companies, or money transfer providers. Whilst it can sometimes appear a little complicated, what they do is very simple; transferring money overseas on behalf of corporate clients or individuals.
There are two ways in which currency brokers will make money from your international payments. The first is a fixed transfer fee. These can vary from £5 - £25 depending on your provider and are charged each time you transfer money overseas. But not all transfer costs are transparent, the main charge for money transfer services comes from the exchange rate offered to you by the provider.
The difference between the interbank exchange rate, or ‘real’ exchange rate, and the rate you are given by a broker is called markup or a “spread.” This will typically range from 0.5% - 2% with a broker and up to 3% with a bank. For a business exchanging £1,000,000 a year, some brokers can charge more than £20,000 - money that belongs to you.
The way brokers obtain currency is actually very similar to your product supply chain.
This is where it starts. Banks like Barclays will exchange currency at interbank levels, the true value of any currency pair.
Distribution and Wholesale
The banks pass on wholesale (interbank) rates to payment providers (brokers), who will process your foreign payments, and convert currencies for you.
Retail - You
Brokers take a margin, usually between 0.5%-2% from the interbank exchange rate, and then pass on the rate to you. If the broker gets a GBPUSD rate of 1.3150 from the bank and takes a 1% spread, he would offer you a rate of 1.3018. This means your broker has charged you 1% of the invoice size, so if your invoice was $100,000, you would have paid $1000 to your provider.
Brokers typically charge £500-£2000 per £100,000 exchanged, per customer. Integritas offers a fixed 0.15% markup on currency transfers and will never charge you a fixed transfer fee. Our simple online platform also shows you the real exchange rate, giving you complete transparency over your international payments. Take a look at our product features, or use our free cost calculator to find out your current charges.