When should I exchange my money?

Whilst the motivation to exchange currencies varies from client to client, we have distilled our approach to answering the question of 'when' and 'timing' into a relatively broadly applicable mantra - "when the rate of exchange allows you to achieve what you want, exchange".

What do we mean by this?

The two common objectives for individuals exchanging their money are a) to buy as much of a foreign currency as possible for the base currency they hold and b) to pay as little base currency as possible to buy a specific foreign currency amount.

Whilst these two concepts may seem broadly the same, they differ quite dramatically.

The overseas buyer purchasing in London has a finite number of euros or dollars and knows she requires a specific number of pounds to proceed. Therefore, the rate of exchange must be at at least a specific level to ensure the foreign currency she holds buys the sterling amount she needs.

Conversely, someone who has a specific number of dollars or euros, say from a foreign currency denominated income, inheritance or gift from someone overseas, wants to realise, buy and achieve the greatest number of pounds possible.

In the second of these two scenarios, whether the client is able to 'do' something or not, whether they are in a position to buy that house (for instance) is not determined by the rate of exchange. They want the most money for their currency...and the first example wants to pay as little as possible to achieve something specific.

Regardless of which camp you or your client fall into, trying to guess or predict where a rate is going to go is just as likely to see you worse off as it is better off, so, 'speculating' is a foolish route down which to go regardless of the objective.

For the client buying something specific and who holds a finite amount of foreign currency, if the rate of exchange ('right now') means you can buy what you need...then exchange. The absolute imperative and bottom line in this scenario is the achievement of that key objective - namely, ensuring what you have, buys you what you want. If you wait then you risk having too little of the foreign currency and the entire endeavour is moot. This is true even if you see a continued improvement in the rate of exchange. Every minute movement above the minimum rate you require is 'nice to have', but holding off to see some sort of a peak and to trying to 'catch it' is breaking that no-no rule on speculating. You might wake up the following day only to find the entire gain is lost because a politician sneezed.

For the party hoping for the most from the currency they hold, consider your own tolerance for loss. How much more do you need to get, as of today, in order for you to feel comfortable exchanging? And, how much of a loss are you prepared to weather before you cut your losses and take what you can get?

Part of our role is to help you confront the answer(s) to the questions above. We want to tell you what rate you need in order to be able to afford that house. Equally, we can quantify exactly how many fewer pounds and pence you might receive were any number of things to happen to the rate of exchange; you can then weigh up the pros and cons yourself using contextualised numbers relevant to your intended exchange.

Remember though, if you leave the timing of your exchange up to the discretion of the broker, bank or institution you are using for the exchange, not only are you dealing with a company (or individual) who is flouting their own operating regulations (because the company is not permitted to speculate on your behalf) but, you are robbing yourself of the opportunity to fully make peace with whatever rate is used. Who are you going to blame if you see the rate change to something more favourable the minute after the exchange is done?