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For many people currency exchange is like dark matter. They do not understand how it works and some don’t even to know where to go to exchange currency. They simply do not have frequent need for it. Majority of the people end up exchanging their currency at the airport when they land in the foreign country. While this is very convenient they end up paying high commission fee for it. Recently a new trend has emerged that bypasses these middlemen. It is called peer to peer exchange and it is not only convenient, but also saves you significant money in fees. So what is peer to peer currency exchange and how does it work?
No banks or brokers
Over the past decade or so, a new breed of currency exchange companies that do not charge high fees has emerged. Rather than buy and sell currencies using the traditional money market route they look for people who want to sell currency and match them with those who want to buy. Effectively they act as an intermediary and take a small fee for doing so.
You tell them how much money you want to exchange and what currency you want to buy. They then search their database and find a firm or private individual that wants to buy the currency you are selling and has the currency you need. The results of this search are sent to you as well as details of the transaction fee and exchange rate that is available.
If you are agree with the price and terms, the peer-to-peer (P2P) firm will take care of the transaction for you. The firm or person who has the currency you need sends it to the P2P firm and you send your currency to them. They swap the two currencies. You end up with the currency you want minus the pre-agreed fee and the buyer gets their cash in the currency they want.
Benefits of Peer to Peer Currency Exchange
It is a quick and easy to follow process. Initially this service was developed for business users, but today it is popular with all kinds of people especially expats, students and those with family who live abroad. The accessibility, simplicity and transparency of the service makes it perfect for any kind of user, but particularly small businesses who are often busy and need low cost yet dependable services like this.
Cheaper currency exchange
The exchange rate used is normally fixed by the market. Rather than use the top market rate the best firms use the midpoint rate. The fact that they use the midpoint rate means that you get a better exchange rate than you would if you used a traditional currency exchange service. In other words, you end up with more money in your business account.
In addition, the fact that these firms are not using the money markets for the transaction means that they can charge far lower fees. Typically, the transaction fee you pay is less than 1%. Using a traditional bank or broker, you can expect to pay at least 2% often 5%, as well as lose money on the exchange rate.
Finding a trustworthy provider
Across the world, there are more and more firms offering this service. Most are very good, but it is important to vet providers before using them.
In most countries this type of currency exchange service is well regulated, which makes them as safe an option as any other form of currency exchange. However, you do need to check that the firm you are planning to use is bona-fide and is a member of the relevant trade or regulatory body for your country.
If you are looking for a fast, inexpensive way to change currency for your business, peer-to-peer exchange firms are certainly well worth looking into and using.
