Compare foreign exchange

What is foreign exchange?

Foreign exchange refers to the act of changing one nation's currency to another's. Today forex can refer to currency trading, where investors are trying to make a profit, the same way as a stock trader would. FX can also apply to those exchanging money for personal or business use. Foreign exchange can particularly be important if you're sending money home to family, invest in a foreign country, or have clients located overseas.

How does the foreign exchange market work?

Currencies are traded through electronic communications networks (ECNs) – to the tune of $7.5 trillion per day (as of April 2022). The forex market is the largest financial market in the world, covering companies investing in foreign companies, tourists exchanging money and traders looking to leverage rates to turn a profit.

Factors that affect how a country's currency trades include inflation rates, political developments, monetary policy and foreign trade. Other factors are consumer confidence about the economy and economic growth, monetary policies in other countries, investor speculation and news about elections, new government policies and natural disasters.

Compare foreign exchange services

Options for converting currencies

You have many options when it comes to converting currencies, with each appealing to a specific situation.

• International money transfer specialists. More companies are popping up that offer a full range of forex services with larger varieties of available currencies. These companies are normally online and let you send your money worldwide with competitive exchange rates and lower fees than banks.
• Banks. The vast majority of Australian banks offer a selection of currencies but more exotic currencies may not be available on short notice. Banks typically charge higher conversion fees and offer weaker exchange rates than your other options.
• Foreign exchange kiosks and post offices. Usually found at airports, kiosks run by companies like Travelex offer foreign exchange services. Your local post office may offer currency exchange services. Make sure to compare the rates and fees you'll be charged before converting with these services.
• Credit and debit cards. Many credit and debit cards automatically convert US dollars into foreign currencies when you're overseas. You'll normally pay foreign transaction and ATM withdrawal fees, whereas cards designed for international travel may allow you to lock in currencies at specific rates and waive foreign transaction fees.

Forex tools to get a better exchange rate

Many foreign exchange providers offer flexible tools that can insulate you against rapidly fluctuating market exchange rates – and help you better predict when it's best to complete your exchange. These hedging and planning tools include:

• Forward contracts. If the current exchange rate is in your favour, a forward contract could allow you to lock it in for future transactions, sometimes as far as two years into the future.
• Limit orders. Specify your ideal exchange rate with a limit order and when the market reaches that rate, it's locked in for you to complete your transaction.
• Stop-loss orders. A stop-loss order is nearly the opposite of a limit order: instead of specifying an ideal rate, you indicate a rate you want to avoid dropping below. If the market falls to that rate, your currency is purchased automatically, giving you the potential to profit when the market rises again.
• Recurring transfers. If you need to send regular cross-border transfers – weekly, monthly or quarterly payments to the same recipient – many services will allow you to lock in more favourable exchange rates with lower fees.

How do I compare foreign exchange services?

• Transfer fees. Most banks and exchange companies will charge a fee for converting currencies. Because these fees can vary wildly, find out whether the provider charges a percentage of the total sale amount when buying or a flat fee.
• Exchange rate markups. Nearly all providers add a markup to exchange rates to make a profit. Banks typically add a larger margin to the mid-market rate, while a money transfer specialist will minimise the margin. Look for the smallest margin between the mid-market rate and the rate you're offered.
• Processing times. Depending on why you're converting money and the amount, how long it takes for your transaction to complete matters. Many companies provide priority services for an extra fee, so be sure to factor this fee into your comparison.
• Processing options. You might need to conduct regular transactions if you're making overseas mortgage payments. If so, add the availability of recurring exchanges to your comparison of providers.
• Extras. A provider may offer one-on-one services to business clients along with the ability to negotiate the rate. You might also be able to take advantage of forex market analysis with your foreign exchange provider.

While some providers offer competitive rates but higher fees, others could offer lower fees but weaker rates. Weigh rates and fees against convenience and compare at least three providers – banks and online specialists – before deciding on a service.

Frequently asked questions

• How long does it take to convert and transfer money across the globe?

  Conversion and transfer speeds depend on the currency you're exchanging and the service you use. You can typically exchange or transfer major currencies in a few days, while more exotic currencies can take up to four days or more.

• What is a spot rate?

  Many exchange services advertise what's called a spot rate. This is the value of the currency you're buying or selling at that moment in time, different from the "forward rate" you'll receive when actually initiating your transaction.

• How safe is a money transfer?

  When processed through a reputable bank or company, your funds are tracked until they're in the hands of your recipient. All of the services we list have been regulated by the country's regulatory authority. However, it's always good to only transfer money to someone you know well. You can learn more about some of the common money transfer scams in our guide on this.