If you do business outside Canada, you need to know about currency foreign exchange or FX. If you are leaving FX rates and charges to chance, you are likely being overcharged.
The good news is that where small businesses were once at the mercy of big financial institutions, modern technology has leveled the playing field in the world of FX. A basic understanding of how FX works will help you get a handle on your cash flow, keep more of your profits, and satisfy your overseas customers.
The FX Market Is Huge & Misunderstood
The FX market is bigger than Wall Street and the U.S. Federal Reserve combined. It is the largest financial market in the world in terms of trading volume (about $6.6 trillion). Unlike Wall Street, it is neither regulated by governments nor well understood by laypersons.
As an “immaterial entity” it provides a platform to exchange, buy and sell, and speculate on the currency. Most of the trading in FX is purely speculative. The most spectacular example of FX dealing earning someone a fortune was George Soros’s famous bet against the British pound in 1992. He won the bet and profited over $1.25 billion.
What Affects The FX Market And Currency Value
Currency is just another tradable good. It obeys the law of supply and demand, and its value falls and rises based on a variety of financial, political, and psychological factors. Along with those intangibles, changes in the value of a country’s currency depend on what is happening both inside and outside that country.
Bank interest rates, unemployment, inflation, and local monetary policy and regulation also affect the currency’s value. External market trends, the international situation, and a country’s international reputation among speculators and investors also pile on to make currency value volatile.
Exchange Rates Fluctuate, But International Exchange Stays Relatively Static
A line graph of the value of a currency would look similar to the ups and downs of the Dow Jones daily average. Nevertheless, big financial institutions usually offer a relatively static and stable exchange rate for international payments. They can do that by adding an inflation factor that absorbs the ups and downs of the FX market.
Nevertheless, the FX market is stacked against businesses doing cross-border transactions. Businesses, rather than money exchangers, take all the risks because large financial institutions are autonomous. They are not required to provide transparency and only operate in their own self-interest.
The Ground Rules Are Changing, And The Tools Are There
Returning to the good news, technological advances since George Soros broke the bank of England have leveled the playing field, and even the smallest business startups can get a handle on international FX. The handle relies on getting a grip on understanding the FX system.
For the small business owner, the understanding begins with tapping into a stable and reliable payment process and finding a better international payment solution. That solution will give small business owners more control over their revenue streams through real-time insight into currency exchange rates. That insight, in turn, will ultimately lower overseas prices for the customer and increase profits for the business.
Are You Buying Or Selling Your Currency?
When conducting cross-border business, you need to know whether your transaction involves FX buying or selling; i.e., what is the base currency? In FX trading, currency values appear in terms of a currency pair. The first currency in the pairing is the base currency. So the base currency determines the exchange rate quoted in a particular country.
For example: In trading CAD/US, the Canadian dollar is the base currency. The US dollar in this instance would be the secondary. Banks use those pairings to either bid on what they will pay for the base currency, or offer a selling price using the secondary currency.
So the difference between a bank’s bid and its offer to buy is the spread. The spread is the amount the bank will make on the deal. They influence that amount by bidding or offering on the low or high side, depending on how much they will save or earn. That difference hides in plain sight as the transaction fees, which accompany overseas business deals.
The Key Is To Reduce The Spread
Currency exchange rate fluctuations and opaque bank practices notwithstanding, you don’t have to be George Soros to gain control of your overseas cash transactions. You can trade at a lower fee than offered by banks and FX brokers using a payment platform.
Payment platforms have emerged as popular tools in today’s tech-savvy and consumer-oriented financial markets. Those platforms are an especially attractive option for businesses with finite resources and who would rather focus on making their product more competitive—without the encumbrance of keeping track of FX fluctuations and having to pass high transaction costs to their customers.
Want To Learn More About Our Payment Platform?
See how our payment platform can remove FX volatility from your overseas business cash flow. Contact us and we’ll show you how you no longer have to sacrifice revenue just to gain a better footing in your overseas markets.
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Who can use the MTFX payment service?
Individuals and businesses who need to send money in foreign currency internationally can use MTFX’s services. The beneficiary of the transfer must have a bank account for the funds to be paid into.
Personal clients usually use our services to transfer money between their own accounts in two different countries.
Business clients usually use our services to transfer funds to suppliers, fund international operations, or repatriate overseas earnings.
Why should I use MTFX and not my own bank?
MTFX offers currency exchange rates that are 2-5% better than those offered by the banks. Personal clients usually save hundreds of dollars per transfer and for larger transfers, the savings can run into the thousands.
We also offer excellent customer service, dedicated currency specialists, and a 24/7 online platform with best-in-class technology that allows you to complete transfers from any device virtually anywhere in the world.
Business customers save with better currency exchange rates and proven solutions geared towards managing and mitigating foreign exchange risk. Our solutions include forward contracts, market orders, rate alert services, and much more - all backed by great technology and great people.
How do customers send funds to MTFX?
Funds can be transferred via wire transfer, Electronic Funds Transfer (EFT), or ACH payment services. MTFX maintains bank accounts in all major currencies with highly-rated banks. Our banking infrastructure ensures that you can transfer funds to us quickly and securely.
How long does it take MTFX to transfer funds?
Our global network of banking partners allows us to get funds to virtually anywhere in the world quickly and efficiently. Most wire transfers from MTFX will be received by your beneficiary within 24-48 hours. MTFX also offers same-day transfers that are almost instantaneous, as well as low-cost in-country payment services for your less urgent transfers. For further information please speak to one of our currency specialists.
Please read the following update before logging in to your MTFX online account
We have updated our online dealing system to provide you with better functionality, more unique tools and an overall enhanced client experience. MTFX Online 2.0 is now available for your dealing needs. You can begin using our enhanced online portal today.
Please note that the traditional portal will be available for use until MAY 30th 2021 at which point it will be decommissioned.