Low Fees Foreign Exchange Using CurrencyFair (Part 2)

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.

The exchange

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.

Low Fees Foreign Exchange Using CurrencyFair (Part 1)

I learned of the peer-to-peer foreign exchange facilitator CurrencyFair (CF) last month. CF is based in Ireland and was founded by four former bankers (with a blend of nationalities; Irish, Australian, Irish/Australian and Welsh)  who wanted to “build a currency exchange on the internet. It will be where people buy and sell currency from each other. Not from a bank”. The currencies supported are listed below:

From the various online feedback I read, they sound like a legitimate setup and so I decided to try them out.

Initial questions

Before opening the account, I sent CF an email to ask some basic questions. Some of the answers can actually be found in their FAQ, but I wanted to confirm them (in case they are outdated), and more importantly, I wanted to see if CF responds to questions in a timely manner.

I received a well-researched initial reply from an associate director in about one business day (considering the different timezones). Subsequent questions to the same person were replied within an hour when CF was opened for business. Great. CF did well.

Account setup

With the initial questions out of the way, I went ahead and register for an account. CF requires the following information — name, address, date of birth. (Note to U.S. users: being in Ireland, CF does not require the social security number). To verify identity, CF asks for a copy of the passport or photo ID and two proofs of address (phone bill, utility bill etc). These can be uploaded online to their website. After I uploaded the requested information, my account was verified and active the next day.

Getting money to CF

At CF, before any foreign exchange can be done, money must first be transferred into one of CF’s bank account. CF’s USD bank account is Bank of America (BOA). I explored a few ways to get money to CF’s BOA account:

  1. Wire the money (fees): Wiring the money to BOA would be fast, but it will also require me to visit my credit union and a domestic wire fee of $20. Scratched that.
  2. Use BOA’s internal transfer (free): BOA’s online banking supports intra-bank person-to-person transfer. I don’t have an existing BOA account so I considered opening a BOA account for this purpose. I chatted online with BOA’s rep to make sure that I can transfer money to CF. The rep told me I can transfer to any BOA account. I rephrased my question and asked if that includes a “Business account”; the rep then replied that I should call a number to verify. I did not call the number since I could get wrong information again; instead I asked a friend who has a BOA account to try to add CF into the transfer list. BOA’s online system responded that online transfers to business account cannot be added, just as I suspected. I am really glad I checked first; otherwise I would be stuck with an useless BOA account for the next few months.
  3. Use an ACH push (free): Many banks now support ACH pushes to other financial firms but these typically require account verifications (e.g. two small trial deposits). They also require the sender to be the owner of both accounts. Nevertheless, there are two institutions which I know of that support ACH pushes without these requirements. The two are ING Direct (Orange checking account, OCA for short) and USAA. Since I already have the OCA, I decided to try that. I found that OCA’s transfers are typically processed on the second business day. After adding one business day for the timezone differences, my money arrives at CF in three business days.

Great. I have managed to get money to CF without any fees. Now I am ready to check out CF’s foreign exchange system.

(continue to Part 2)

Reverting back to using checks instead of ACH

ACH transfers (or better know as electronic funds transfer) is supposed to be the new method of money transfer in the 21-st century. But strangely enough, I find that I am reverting back to using checks for some of my transactions instead of using ACH. The following are some examples.

Depositing money at brokerages

TD Ameritrade offers a very fast ACH system for funds transfers. Recently, after setting up two new links to my bank accounts, I used the system to move some money from one account to another. That however seemed to trip them up and their compliance department sent me a secure message telling me not to use their ACH system to transfer money. In addition, they pointed out that, at their discretion, money pulled in using their ACH system can be held for up to 60 days before I can withdraw it.

Funds deposited electronically may be withdrawn three (3) business days after settlement date. However, all electronic deposits are subject to review and may be restricted for 60 days.

If I sent them a check, the funds can be withdrawn in six business days; there are no further restrictions after six business days. If I use ACH, there could be restrictions for up to 60 days.

Transferring money

My current paycheck goes into the Fidelity mySmartCash account. I had setup the mySmartCash account a few years ago for its very good BillPay system and availability of market rate money market funds. But now that the market rate for money market funds is very low compared to online savings accounts, I have been pulling out any excess money and moving them to the savings account (I am using Alliant Credit Union’s savings account) whenever my paycheck is credited. (I know I know, I should update my direct deposit instructions…).

To transfer the money, I do not use Fidelity’s ACH system. Instead, I write a check against the mySmartCash account and deposit into one of Alliant CU’s network of ATMs. The result: I start earning interest on the day of deposit (say Thursday). The mySmartCash account is debited only on the following Monday.

Similarly, when I have money to transfer out from TD Ameritrade, I write a check against that account and deposit it into the Alliant’s network of ATMs. I no longer use TD Ameritrade’s ACH system.

Paying for taxes

To pay for state and federal taxes, I used checks instead of ACH. This gives me additional float of the funds before the debit.


On surface the ACH system is a very efficient means of money transfer, however because of its relatively lack of security for the bank “pulling” the money, many financial institutions have chosen to impose limits on these transactions. Some of the liability issues are discussed in the following post on BankDeals:

If a bank initiates an ACH credit to another bank, that ACH credit cannot be recalled. So if a bad guy somehow got into a Provident account and transferred all the money out, Provident would be liable to the account holder (assuming it was a consumer — not a business — account) and it would have no easy way to get the money back from the bank to which it was sent.

On the other hand, if another bank initiates an ACH debit from a Provident account, then NACHA rules allow Provident to reverse the transaction — no questions asked — for 60 days if they can produce a Written Statement Under Penalty of Perjury (WSUPP) from the account holder. They are under no obligation to investigate the legitimacy of the WSUPP.