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How to Find the Best Exchange Rate

Exchange rates are crucial to a country’s economy because they affect financial flows and trade between nations. There are several benefits to having a good exchange rate: a strong currency makes imports cheaper, and when imports are cheaper inflation goes down which lowers the cost of living. Exchange rates also affect you when sending money abroad. To save money you should always spend time looking for the provider with the best exchange rate for your currency pair. This guide will take you through what you need to know.

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How do exchange rates work?

Exchange rates tell you the value of your money in a foreign currency. In other words, it is the price charged to purchase another currency. Foreign exchange traders determine the exchange rate for the majority of currencies. The market trades trillions of pounds per day. 

Changes in exchange rates influence decisions of businesses, the government and individuals. Collectively, this affects inflation and economic activity. 

When you are sending or buying currency, a higher rate is better because you get more currency for your money. When you are selling currency, a lower rate is better because the lower exchange rate will enable you to make a profit. 

The currencies that are used most often, such as the American dollar, the British pound, the Japanese yen and the Canadian dollar use flexible exchange rates. In countries with flexible exchange rates, government policies may influence exchange rates over the long term, but they do not have the power to regulate exchange rates. However, a fixed exchange rate is used in countries where the government regulates the value and controls the rate. Countries with fixed exchange rates include Saudi Arabia, Denmark and Hong Kong.

How to find the best exchange rates

  • Start Looking at Exchange Rates Early: It’s difficult to predict foreign exchange rates; not only do prices fluctuate from day to day, but prices are not the same across the board. It is normal to find two currency exchange shops on the same street with different rates. However, it is advised that you start watching currency movements at least one month prior to sending funds abroad. Buy when the rate is climbing, and your currency is the strongest. It is always advised to strike while the iron is hot, you can often lose out by waiting for a significant increase in exchange rates. Unless there are unusual circumstances taking place such as Brexit, it is rare that you will get an exceptionally high exchange rate. On 23 June 2016, the day of the leave or remain Brexit vote, the GBP-USD exchange rate shot up to 1.48, which was the highest rate in 2016. Therefore, it is essential that you pay attention to what is taking place in your country’s economy. 
  • Pay Attention to the Current Exchange Rate: In today’s market, some currencies are at an all-time high, and some have crashed to an abysmally low rate. Currency is always fluctuating due to supply and demand; therefore, the prices change daily. There are several factors that contribute to a change in rates. The majority of the world’s currencies are bought and sold based on the supply and demand of the foreign exchange market. When a currency is in high demand or there is a shortage in supply, the price will go up. There are several reasons for this, these include interest rates, economic forecasts, and employment rates. You can use a money converter app such as Xe to follow interbank rates on your chosen currency. You can also register with a site such as Transfer Wise to get email alerts for the best rates.  
  • Don’t Use a Bank Transfer: Banks offer convenient and secure international money transfer options; however, they do not provide value for money. You will often find that they offer the lowest exchange rates in comparison to international money transfer providers, and they charge hefty money transfer fees. 
  • Know the Mid-Market Rate: The mid-market rate is also known as the interbank rate, it is the rate that is midway between the global supply and demand for that currency, and the rates used by transfer services and banks when trading between themselves. Use the mid-market rate to compare any rates you are offered. 

How to secure the best exchange rate

Hedging is a word used in the investment community to describe lowering your risk or protecting you against loss on a trade. There are a number of tools you can use to hedge your risk in the currency transfer and foreign exchange market, these include the following:

  • Forward contracts: A forward contract enables you to lock in a decent exchange rate which protects you against unexpected movements in exchange rates. However, there is a chance that the rate will improve and you could get locked into a lower rate. Forward contracts are ideal for those making regular transfers or for businesses. The agreement will guarantee you a rate between 30 days and two years. A deposit is required, and the balance paid upon execution of the contract.
  • Limit orders: You state your ideal exchange rate, it is locked in once the market reaches that rate, and the transfer company will contact you to authorise and complete the transfer. 
  • Stop Loss Orders: A stop-loss order is the opposite of a limit order, it involves specifying the rate you want to avoid dropping below. Your currency is purchased automatically when the market falls to that rate. People often combine stop loss orders and limit orders together.

Read our simple guide on how money transfers work to get a better understanding of forward contracts and limit orders.


Exchange rates are always changing and it’s impossible to determine the direction they will go. But as you have read, there are steps you can take to ensure you get the best rate available at that time. We pride ourselves on providing reliable information that will benefit the reader, don’t just take our word for it; go out and do the research for yourself, so you are confident about the transaction you are going to make when sending money abroad.