The best way to exchange currency to purchase your Madrid property
Too often, we find our non-European clients wait until the last minute to exchange currency to purchase their Madrid property. Read this article to learn how to get the best exchange rate and to receive a special rate available only to Moving2Madrid customers.
When should I start thinking about buying euros?
We find that most of our clients wait until they need to make a deposit on their property to buy euros. This is not the optimal strategy at the best of times. Today it is even worse. World exchange rates have become increasingly volatile. This sounds scary, but can actually work to your advantage. This is because if you have a plan, and stay on top of the situation, you can take advantage of weakness in the euro and/or strength in your home currency to get a great deal.
What are the different ways to buy euros?
Professional currency traders employ a myriad of opaquely named tools to get good deals for their corporate clients or merely speculate on whether currencies will rise or fall. If you need currency to purchase real estate, we recommend purchasing it through our partner currency trader. If you buy through them, you can exchange currency three different ways.
Do you want help exchanging currency to buy your Madrid property? Contact our preferred currency broker today. They are a full-service broker and will not only give you a great euro exchange rate, but will “hold your hand” every step of the way.
1. Spot currency exchange
Currency rates are constantly changing. Buying euros on the spot market means you get the foreign exchange rate that prevails the day you exchange your currency. If you exchange through our preferred broker, you call them and they will give you their most current rate, which changes every three minutes. Exchanging currency on the spot market is a good strategy if rates are very stable.
2. Currency rate watch
This allows you to choose your desired exchange rate. It requires a basic knowledge of current and historical exchange rate ranges. Armed with this, you can choose your preferred exchange rate for a specified period. When the euro hits this rate, the trader automatically buys the amount of euros you requested.
3. Forward (futures) contract
This allows you to lock in today’s exchange rate for the future, without actually purchasing euros. It requires a 10% deposit. Once you make the deposit, you can exchange currency in the future at the current spot rate. This is a good strategy to employ if the exchange rate is particularly good one day, or if you expect your home currency to fall. For example, if you live in the UK and want to buy Madrid property in spring 2019, it could be a good idea to lock in an exchange rate now in advance of Brexit related turmoil.
If your country’s exchange rate goes the opposite direction and improves, you are still covered. You pay a reasonable cancellation fee and get your 10% deposit back at the current spot rate.
Why it is better to use a currency broker than a bank to exchange currency?
In short, because you will get a much better exchange rate. Banks typically charge customers 4% of the total transaction amount. Full-service currency traders typically charge 1%. A three percent difference may not sound like much. However, let’s assume you want to get a Golden Visa and are buying a 500,000€ property. Moreover, you are planning on paying 60,000€ for a renovation. In this situation, purchasing currency from our preferred trader, as opposed to through your bank, would save you 16,800€.
How to choose the best currency broker
Typically, there is a trade-off between the level of service a trader provides and the commission they charge. A higher level of service results in a higher commission. You need to choose which you prefer: a more favorable exchange rate or a higher level of service.
Online currency brokers
Online brokers have the lowest exchange rates. The most reputable online broker is Transerwise. It is a relatviely new company, founded in 2011. Although it gives very good rates (currently 0.45%), it is not for everyone. All transactions must be done completely online. It is impossible to talk to an agent, requires a decent knowledge of exchange rates and a relatively large time investment.
Traditional currency brokers
Currency brokers offer rates that are better than banks, but higher than online brokers. The advantage of using a broker to exchange currency is you can pick up the phone and call someone to help you make the trade. They can give you advice, help you find the best way to purchase the currency (spot vs. futures market) or even keep track of the exchange rate and buy when the rate is most favorable to you.
Recommendation for Moving2Madrid clients
For most of our clients, we recommend buying currency on the spot market through our preferred currency partner, which is a full service broker. Why? Because it is the easiest and least time consuming way to purchase currency. They are based in London and hold accounts with Barclays in multiple currencies. They have a significant presence in Spain. They have a branch in Valencia and hold euro denominated bank accounts in Spain.
How the trades work
When you are ready to make the trade, you deposit your currency into their account. Here is an example. To make it easy, we have netted out the transaction fees.
Assume you are buying an apartment that costs 500,000€. If you have Sterling, and the euro to pound exchange rate is 1.12 EUR/1.0 GBP, you transfer £446,060.22 into their Barclay’s account. They immediately transfer 500,000€ from their euro denominated Spanish bank account into your Spanish bank account. This transfer is free for UK citizens. US citizens must pay an additional $40 transfer fee.
What you need to open an account and exchange currency
There are two types of countries: Low risk and Higher risk. One you open an account you have two years to start trading currency.
These countries include the US, UK, Canada, Australia/New Zealand, Commonwealth Countries and most European countries. If you have residency in one of these countries, you need to provide:
- A completed registration form
- Proof of Identity (Passport or European identity card)
- Proof of address (suitable forms include a utility bill, drivers license if you are from the US, election poll if you are from the UK)
The processing time to open an account from one of these countries is usually a couple of hours. The maximum time is one day.
These countries include the UAE, Qatar, Thailand and others. If you are from one of these countries you need to provide the above, plus:
- The source of funds
- The destination of the funds
- Your last three bank statements
The processing time to open an account can take up to two days.
Our currency trader even has an app that you can use for trades less than 30,000€. All trades over 30,000€ must be done over the phone, due to international banking regulations.