Anyone making a big international transaction for the first time has an excuse for being worried. The world of currency will feel unfamiliar – strange even – with traders and analysts using their own jargon and phrases such as “priced in”, “downside risk” and “volatility”. And when you’re making the overseas transaction of your life, who wouldn’t be a little nervous? In fact, currency exchange for properties can be simple and risk free if you use the right company. Let us explain.
Trading currency pairs
If you have pounds and you are buying a property in euros or dollars, you have to “trade”. The two currencies you will be trading are known as a currency pair and each currency has a three letter code: GBP, USD, EUR, INR etc. You can probably work them out, but if not all the currency pairs are all listed here. It doesn’t help when traders use nicknames, such as greenback for the US dollar, loonie for the Canadian dollar, sterling, “the single currency” (the euro), as so on.
Pairs are written as GBP/AUD, where the British pound is what you have and the Australian dollar is what you want to buy. If you’re an American buying an Italian home you’ll be interested in the USD/EUR rate.
The exchange rate quoted on the news is what’s known as the “interbank rate”, unavailable except to huge financial institutions. But you can get pretty close to it when buying a property via Smart. When making a large transaction, much more important than the fraction of a penny difference in the rate, is the risk of a large-scale fall in the value of the pound during your transaction. This is what’s known as volatility an it is particularly relevant to property buyers.
You’ve committed to buy a property for €250,000, paid your deposit, signed a binding contract, told all your friends and organised removers. But now you discover that the pound has dropped by 5%…
Why? Because there is usually a couple of months between paying the deposit and paying the balance. So for example, suppose you have committed to buy a property for €250,000. You’ve paid your deposit, signed a binding contract, told all your friends and organised removers. But now you discover that the pound has dropped by 5%. The seller has the legal right to their €250,000 but your pounds are no longer buying you that amount. You have to find another €12,000 or so. If you cannot do that the sale can fall through and you lose your deposit.
We can fix that problem with a forward contract. As soon as you’re sure you’re going to buy, you can lock in that rate by paying a small deposit for a forward contract. Then you know exactly how much you will have to pay in pounds and won’t have to keep on frantically checking the rate!
How Smart fixes that
Smart Currency Exchange only deals in currency, and we specialise in property transactions. We really have seen it all before! When you register with us you’ll be assigned your own trader. He or she will take the time to understand your plans and what you need. But beyond that, they will keep a close eye on the future and potential movements in currency. For example, the chance that the pound will fall (“downside risk”) in the near future. Your trader will certainly not make predictions, but they do know what is coming up that could affect the currency.
It is unwise to try and play the market. We recommend focusing on your plans and the budget you need for that. Then analyse the risks, with your trader. Then work out the solution to prevent those risks.
Indeed currencies rarely seem to move the way you expect. That’s because the large-scale financial institutions will be playing the markets like chess grandmasters – several steps ahead. Hence a political event like a Prime Minister resigning or an interest rate changing might be “priced in” – everyone already knew it was going to happen and have made their trades accordingly. In our long experience it is unwise to try and play the market. We recommend focusing on your plans and the budget you need for that. Then analyse the risks, with your trader. Then work out the solution to prevent those risks. Budget – Risk – Solution. It’s how we have made our name and our 99% rating on Trustpilot.
We understand that some people will prefer to deal with their high street bank. However, you can rest assure that currency companies are regulated by the Financial Conduct Authority (FCA) and are as safe to deal with as a bank. Even better, we do not charge for transfers either – whereas most banks do.
Moreover, when buying a property abroad, service is all important, and as one of our cleints said: “We have had a few recent deals that have worked out really well for us and the fact is, if we went and spoke to more traditional banks, we just would not get the same level of understanding as we do with Smart.”
If you would like to discuss the various ways you can save money on your exchange rates, please call us on 020 7898 0541 or request a quote and find out what your real property budget may be.