What is your markup on FX transactions ?

  • Post
    Patrick Kunz
    Keymaster
    NL
    do you know the price you pay for your FX transaction ?

    Either with a broker, your bank or indirect by doing transfer from one currency account to another ? This last option is often most expensive.

    I have seen prices of 70-120 bp for such transactions between different currency bank accounts.

    Treasury for champions
Viewing 4 replies - 1 through 4 (of 4 total)
  • Replies
    Hans Dunnik
    Participant
    Would you mean prices on true FX deals or on auto-FX done by the banks when FX flows in or out ?

    What I see that FX margins are auto-applied on amounts. For example amounts <100k, then 150 bp is applied, but >100k-<500k this drops to 100 bp…. going further over 10million, the bp is only 10bp.

    In other words, small/tiny conversions cost a lot of money, and it becomes less of a pain when amounts are higher.

    Do others see the same, or they have 1 fixed margin (bp) they pay, regardless of amount ?

    Patrick Kunz
    Keymaster
    NL
    Hi Hans,

    i meant both the real FX trading and the auto FX you instruct your bank.

    I have seen the same as you with some clients which is amount based. Low amounts start at 120 basispoints and this goes down to 20bp with higher amounts. Most often you exchange small amounts and if you do a lot of these transactions then 120BP margin can hurt a lot and has a big potential saving!

    I also worked with client where the bank has a fixed margin for these transactions. ING at 80BP and Rabo around 70-90BP fixed independent on amount. Still high and if yearly volume high enough it is viable to look into doing FX deals yourself instead of auto trading at your bank.

    For normal FX trading it is worth to check margins yearly. I sometimes work with external partners who can do an independent audit on FX margins including a SaaS platform and auto upload of FX confirmations to continuously monitor your FX deal margin per counterparty and currency and timing of the day. Usefull information.

    Happy to hear other opinions here!

    Treasury for champions
    dpierce@gpsfx.com
    Participant
    Different point of view from a 35 year practitioner.   When you look at spread, margins etc. this should be looked at in a very holistic manner.   For instance if you are a global company with many entities that are buying and selling currency, the best strategy may be to look for a system that aggregates payments.

    For instance:   I had a client that sent about 20,000 FX wires per month globally from their 128 subsidiaries around the world.   Most of these payments were Inter-company.  Just looking at wire fees at $10 each they were paying $200,000 a month.   I helped them put together a process to capture all of these payments in one place, NET them across all of their entities, make the accounting entries, and then do 1 net payment per month.   Reduced their # of payments from 20,000 per month to under 200.   We also reduced their monthly FX exposure from $200,000,000 a month to between $5-$7MM per month.   This was a case where the Margin on FX (although it high and concerning) was really a secondary consideration to taking advantage of Natural Hedges and off-setting exposure within the company.

    To address the original topic directly, any institution is going to charge MORE spread for smaller transactions.   They have to, as it costs the same and takes the same amount of effort to process each transaction.   Also, most FX providers will look at the holistic relationship.  In other words, looking at the yearly volume of not only the FX, but total transactions.   Then use a rate that works for all transactions across the board.

    Happy to share my experiences with others.

    Dave

    Harry
    Participant
    You can check historical FX mark-ups using my free tool: https://mycurrencycost.com

    It just does spot trades for now!

     

    Let me know if useful

Viewing 4 replies - 1 through 4 (of 4 total)
  • You must be logged in to reply to this topic.