After setting up the account and getting the money to CurrencyFair (CF), I am ready to do some currency exchange.
Market and limit trades
If you have traded stocks before, you would easily understand how the currency exchange system works in CF. Similar to a brokerage account, you can place “limit” orders or “market” orders. When you place a market order, you are exchanging your currency at the current best rate. With a limit order, you can specify the rate you want to get, and then wait for someone else on the opposite side of the trade to accept your offer. As with stock trades, limit orders will not be matched if there is no corresponding seller.
There is no fee to place an order on the CF system, and you can make as many changes you want as long as the order has not been matched.
Cost of exchange using CurrencyFair
The cost of exchanging money using CF comes in two parts. The first part is the commission. Here is how CF explains their commission in the FAQ:
What is CurrencyFair’s commission?
Well, this rather depends on which currencies are being exchanged but whatever you’re converting; the commission is incorporated into the rate. So it’s transparent. You can see how much it’s costing.
This means that CF places a markup to the foreign rates shown on the webpage.
The second fee comes from the transfer fees charged for transferring money out from CF. CF’s funds transfer fees are as follows:
The standard fee is for a transfer made using the equivalent of ACH in the U.S., and a priority transfer is made using wire.
Placing a trade
A trade to exchange USD3000 to SGD was placed at the rate of 1 USD = 1.27 SGD. The following USD to SGD exchange quote screen appears. The current best market exchange rate is 1 USD to 1.2591 SGD.
At the same time, the offer to sell USD 3000 appears in the SGD to USD quote screen. Notice that it is shown as an offer to buy 3810 SGD at the rate of 1 SGD = 0.7874 USD. If we examine this offer, we can find out the commission that CF is charging.
Taking the reciprocal of 0.7874, we get 1.27000254, which rounds to 1.2700. This is in fact the same as the exchange rate requested, suggesting that CF is in fact not charging any exchange fee. I don’t know if this is because of a temporary fee waiver or if it is a bug or if this is the CF’s intention all along. In any case, I am happy with this finding.
I compare this rate with the rate being offered by DBS bank at that time (shown below). DBS was selling USD at 1.275 SGD and buying USD at 1.259, a spread of 1.27%. The market rates available on CF are 1.2737/1.2591, a spread of 1.16%. So the rates on CF are even more competitive than DBS bank.
I left the limit order of 1.27 for the day (3/7/2011) but it was not filled. In the night, I reduced it to 1.2626 and it got matched in the early hours of 3/8/2011. For comparison, here’s the spot exchange rate according to Yahoo finance:
After the currency exchange, I submitted a request to have the money transferred to a SGD bank account. CF charged a fee of SGD5. The money hit the bank in two business days.
My exchange results
Assuming a spot exchange rate of 1.267 when the exchange happened, I received an exchange rate that is within 0.35% of the spot rate. The transfer cost is SGD5.
If I had gone through the traditional route, it would have cost USD25 to send an international wire, a 0.63% fee for the spread, and another SGD10 for the recipient to receive the wire. So quite a bit of money was saved using CF.
Caveats and risks
The amount of currency available depends on the number of users, and is not unlimited like with a bank. But if you are exchanging at most several thousand of USD at a time, it should not be a problem.
There could be concerns of money being held by CF in case of fraud or company failure (read this link). Being overseas, it could be inconvenient or costly to get it resolved. This risk can be mitigated somewhat by exchanging as soon as CF receives the money and then transferring the money out immediately after the exchange.
Trading spreads depend on the relative demand of the currencies being exchanged. A better or poorer rate could result.
Keywords: Experience, Review of Currency Fair, CurrencyFair.