Tuesday, March 8, 2011

Currency exchanges for very low fee through Oanda fxglobaltransfer.

For my currency exchange needs(that is physical currency rather than speculative forex trading) I use Oanda Global Currency Transfer - http://fxglobaltransfer.oanda.com/.

Now Oanda is a forex broker and they have some of the best exchange rates out there. The way to exchange currency is, you open an account with Oanda and fund it(whenever you want, the account could have 0 balance most of the time), with USD or CAD, whenever you need to do an exchange you go to their platform and put in the amount, they give you the exchange rate and the fee you need to pay. The fee is always $25 which is conversion fee including sending you a wire transfer.

The great thing here is that the exchange rate is spot FX rate, what that means is you get the best rate possible(there is a spread but it's around 10 pips which is 0.1%), a rate no other currency exchange place will provide, people mention that paypal has a wide spread, well Oanda has pretty much the market rate available to spot traders.

To give you an example, right now to exchange 1000 USD to CAD, Oanda offers an exchange rate of 0.9713(spot market rate is around 0.9710 virtually the same). So 1000 USD will give you 971.31 CAD - US $25 fee so you receive 995.58 CAD
In this example the fee is high in %, but if you did a 10k transfer the fee is still $25 which in % is pretty low.

Also you will need to wire the money to Oanda, so that's another $25-35 which adds to the whole transaction amount, but as far as I know you need to wire the money to any currency exchange site so that cost is there always.

Oanda is very similar to XE.com with one difference, you can have money sitting in the Oanda account earning interest(yes they pay interest on whatever currency you have in your account) also you have the option of hedging your money. What that means is you can buy/sell USD or CAD or any other currency on margin(Oanda is an FX broker), I don't mean speculate on the FX rates, just use this as a hedging tool.
There are many uses for hedging, for example you see a great rate today but won't have the funds available until next month. However you have some money in your Oanda account, they give 50:1 leverage so you an hedge the future amount at the current rate.

Another example, you have 10k usd sitting in your bank account not earning you any interest or very low interest. With oanda you can hedge this 10k to 10k CAD with a balance in your Oanda account of less than 1000(you need only 200, but be safe and have some extra in case of large moves of USD/CAD exchange rate), so hedging the 10k will basically lock in this exchange rate, on top of that you will start receiving interest on that trade, in the forex world if you are long a higher interest rate currency(CAD) and short a lower interest rate currency(USD) then you will earn interest on your position, in this case around 0.6%(this is yearly on the whole 10k paid daily) so every day you will get roughly 10k * 0.6%/365 = $0.16 per day.

There are many ways to use this hedging feature of Oanda. If you have any great examples please comment.




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