Generally, ordinary retail consumers wishing to trade small amounts of currency do not interact directly with the Forex. Instead they trade via brokers, agencies, banks or bureau de changes, normally located on the high street or online.

In a similar way to wholesale trading, the broker will offer a bid/ask price, which the customer may accept or reject.

This retail bid/ask price may not be the same as the market bid/ask, as the broker will seek to make a profit from adjusting it in his favour. Alternatively, the broker may offer the market bid/ask price to his retail customers and charge a commission - either a flat rate or % rate. Indeed, in many cases, the broker will do both, i.e. adjust the bid/ask offer in his favour and charge a commission.

For this reason, it is important that the customer shops around for the best deal. The easiest way to compare offers from a range of brokers is to simply divide the number of units of foreign currency being sought by the overall cost. For example, Broker A seems to offer the best rate, 1.78 as opposed to broker B's 1.77. They both charge a £5 flat fee as well as a % based commission. As broker B's % commission is only 1%, we can see that the customer can save 90p for the $100 purchased by purchasing from broker B. The savings increase as the amount of currency purchased increases, because the £5 charge is one-off.

understanding currency exchange charges

Rather than carry out these calculations, the customer simply needs to call a few brokers, tell them how much currecncy they require, and ask for the overall cost. Providing the customer requests the same amount from each broker, he can simply compare the cost and select the broker accordingly.

Although brokers prices vary from the market prices, they will follow the same pattern. However, most brokers will only vary their prices a couple of times per day. They can afford to do this on normal (non-volatile) trading days, because they have comfortably covered their risks by the slewed bid/ask and commission.