Converting Currency

While using your bank for foreign currency transfers might seem like the simplest option, using a specialist broker like Lumon can make the process more streamlined and considerably more cost-effective.

Lumon offers the following currencies:

We offer a large variety of currency pairs in all the major currencies. Please call us directly on +44 (0)20 3384 7280 if you’d like to double-check availability.

At Lumon we offer a wide range of currencies. You can view the latest live interbank exchange rates for some of the available currencies here. The rates displayed are live interbank rates, not the exchange rates we offer, and are for indicative purposes only.

Spot contracts are the most common form of currency exchange and involve converting currency based on the current exchange rate.

Depending on your requirements and the currencies being converted, you can choose to pay for and receive your currency on the same day, the next day, or the day after.

Spot contracts could be thought of as a ‘buy now, pay now’ transaction and are particularly useful if you need to make an immediate or urgent overseas payment.

A spot contract is also useful if you wish to take advantage of today’s rate and you have funds available. If you do not want to send out the purchased currency just yet we can hold it in your e-wallet for as long as you wish.

How does a spot contract work?

• You can book a spot contract with Lumon either online or over the telephone.
• We would then expect payment within the agreed timeframe (up to two working days).
• You provide details of the payment destination/beneficiary.
• Upon receipt of your funds, Lumon will send your payment via the most direct and efficient route available.

Things to bear in mind with a spot contract:

• Once the rate is agreed, the contract cannot be cancelled or amended without charge, as we would have to sell the currency back to the market should you decide not to settle.
• Be wary of banking limits. Most online banking has daily limits, so always check these before committing to a quick settlement on a larger sum of money.

Exchange rates fluctuate by the second, so when you have a large currency transfer to conduct it is important to secure your rate of exchange at a time when the market is advantageous to you.

Booking a forward contract can help you take advantage of a favourable rate movement and can help protect you from adverse market movements, which could make your exchange more expensive.

A forward contract allows you to book a rate for a date in the future without needing to have all your funds available.

How does a forward contract work?

• You let us know the currency pairing and which date you would like to book your currency for.
• We will offer you a rate of exchange based on the length of the contract. If you agree, we will then book it out with you.
• We would expect a deposit payment within two working days. The amount depends on the length and volume of the contract but can be up to 10% of the total being exchanged.
• When you are ready to pay the balance, which can be anytime on or before the agreed date, you settle the remainder of the contract with Lumon.
• As soon as you have details of the payment destination/beneficiary, you provide those to us.
• Once we have received your full payment and you have instructed us to transfer funds, we will release the full amount purchased at the original rate of exchange to the destination as requested.
• If your settlement date arrives but you still do not need to send funds just yet, you can settle with us, and we will hold funds in your e-wallet until you instruct us to move them onwards.

Things to bear in mind with a forward contract:

• Should you not be able to settle, the contract would need to be sold back to the market. Any losses due to market movements would be taken from your deposit and the remainder of your deposit will be returned to you.
• If the rate goes up after you have booked your contract we won’t be able to change it for you, so it is important that when you book a forward contract you understand this rate is now secured. However, if the rate goes down, your secured rate will protect you from future adverse movements.
• We can take your deposit or equivalent in any major currency, it doesn’t always have to be paid in the currency you are exchanging.
• Be cautious when relying on a UK property sale. Booking out a forward contract is great for peace of mind, but UK sales can often fall through, even at the last moment.
• If you have any questions about the suitability of this contract for you, please feel free to contact us and we will be happy to run through your personal situation and discuss your options.

Example of a forward contract in action:

Steve is buying a property in France. He has paid a €20,000 deposit via a spot contract and needs €200,000 in the next three months.

Currently, the rate is better than he budgeted for. Not being a large risk taker, Steve would rather know how much the balance will cost in pounds, so he calls his account manager at Lumon and decides a forward contract would be the most suitable option for him.

He has some cash available now for a small deposit and the rest is in shares, which he will need to draw down in the coming weeks.

Steve’s account manager secures him a competitive rate of exchange for a date three months in the future, and given it is costing less than he had budgeted for, Steve gladly books out the deal.

He sends a deposit towards the forward contract over to his Lumon account, then spends the next three months sorting out all the other stressful and complicated matters when moving abroad, without having to worry about what is happening to exchange rates.

One week before completion, once he has drawn down his shares, Steve sends the balance payable to Lumon and confirms the details of where his funds need to go. Lumon then move money over to Steve’s notaire at the original agreed rate in ample time for his property purchase to complete.

A limit order is an instruction to buy at an exchange rate which is currently not available due to the market being lower. The limit order runs 24 hours a day and triggers if the market rises to your specified rate of exchange. It can be cancelled or amended with a phone call, providing it has not been achieved. This contract type is perfect for a client with time on their side who can to wait for a potential positive movement in the rate.

How does a limit order work?

• You discuss and lock in your limit order over the phone with your account manager at Lumon.
• Shortly after the limit order is instructed you will receive a confirmation of the order.
• As soon as your order is filled, your account manager will contact you to confirm the good news.
• You would need to settle the agreed amount with us within the agreed timeframe.
• You provide details of the payment destination/beneficiary.
• Upon receipt of your funds Lumon will send your payment via the most direct and efficient route available.
• If your settlement date arrives but you still do not need to send funds out just yet, you can settle with us and we will hold the funds in your e-wallet until you instruct us to move them onwards.

Things to bear in mind with a limit order

• Once the order is filled, you are required to pay for it in the agreed timeframe – it cannot be cancelled or amended without charge.
• Should the rate continue to climb after the order has been filled you still receive the rate you requested, equally if the market drops away again your rate is also locked the second it has been achieved.
• If you have an order in but are due to travel, potentially making it difficult to get hold of you or you may struggle to settle within the timeframe should it go through, it is important to let your account manager know, or you can prefund your account to avoid this situation occurring.

Example of a limit order in action:

Claire is buying a property in Spain for €120,000, including all costs. The current GBP/EUR buying price is at 1.1850, so the property would cost £101,265 if she purchased at today’s rate.

Completion isn’t for another three weeks and having read up on the markets, along with speaking to her account manager at Lumon, Claire decides she wants to aim for 1.20 which if achieved would bring the cost down to a flat £100k.

Claire places the order with her account manager and then waits patiently to see how it goes. Within a week the pound has hit a good run of form and the 1.20 price is triggered automatically by the systems here at Lumon, so Claire’s account manager calls her with the good news.

Claire then sends in her £100k within two working days, supplies her onward payment details and Lumon then arranges the transaction for the full €120,000.

Claire is now better off by £1,265 having held off from buying straight away and can use that money to furnish her brand-new apartment in La Zenia.

A stop loss order is an instruction to automatically buy at an exchange rate at a lower level should the market drop. This order is used to help protect clients from adverse market movements and is helpful if you are working to a tight budget and cannot afford to go lower than a certain rate of exchange. The limit order runs 24 hours a day and triggers should your specified rate become achievable, even for a few seconds. It can be cancelled or amended with a phone call providing it has not been achieved. This contract type is perfect for clients working to a budget or those who wish to wait and see what happens in the market whilst having a safety net and a worst-case scenario locked in.

How does a stop loss order work?

• You discuss and lock in your stop loss over the phone with your account manager at Lumon.
• Shortly after the stop loss is instructed you will receive a confirmation of the order.
• As soon as your order is filled, your account manager will contact you to confirm the good news.
• You would need to settle the agreed amount with us within the agreed timeframe.
• You provide details of the payment destination/beneficiary.
• Upon receipt of your funds, Lumon will send your payment via the most direct and efficient route available.
• If your settlement date arrives but you still do not need to send funds out just yet, you can settle with us, and we will hold funds in your e-wallet until you instruct us to move them onwards.

Things to bear in mind with a stop loss order

• Once the order is filled you are required to pay for it in the agreed timeframe – it cannot be cancelled or amended without charge.
• Should the rate bounce straight back up after the order has been filled, you still receive the rate you requested. Equally, if the market drops away further your rate is also locked the second it has been achieved.
• If you have an order in but are due to travel, potentially making it difficult to get hold of you or you may struggle to settle within the timeframe should it go through, it is important to let your account manager know, or you can prefund your account to avoid this situation.

Example of a stop loss order in action:

Richard is purchasing a villa in Portugal and needs to send €115,000 over to complete his purchase in the next ten days. The current rate is sat at 1.1650, so to purchase the euros it would cost him £98,712.

Having studied the markets and spoken with his account manager, Richard believes there is a chance the pound may rise in the next week or so, with that in mind he wants to wait out.

His only issue is he has only budgeted £100k for the final balance, and would need to move more money out of investments should the market drop too much. So, Richard decides the sensible option is to put in a stop loss order at 1.15 precisely because you never quite know what the markets can do.

Richard arranges the order with his account manager and they agree to speak daily due to the short timescale of needing funds.

The rate starts to creep down, and then out of the blue market sentiment for the pound changes due to an economic announcement and exchange rates fall sharply below the 1.15 level to 1.1428.

Luckily for Richard, with his order placed his price triggered as soon as the drop occurred. Richard’s account manager calls to let him know that his order has been filled and he will now need to send over £100k as agreed.

Whilst it is frustrating that the higher level hadn’t been taken when available, Richard was aware of the risks and is happy because he is still on budget. Buying at the 1.1428 would have cost an extra £630 so the fact he had the lower level locked in has meant he has kept to his budgeted level and hasn’t had a nasty surprise due to market movements.

What are the factors behind the rise and fall of a currency’s value? The answer lies in the dynamics of supply and demand.

Monetary Policy
One way a country stimulates its economy is through its monetary policy. Central banks often aim to control the demand for currency by adjusting the money supply and benchmark interest rates.

By increasing or decreasing the money supply, which refers to the amount of currency in circulation, a country can affect its availability. As the money supply expands and currency becomes more accessible, the cost of borrowing that currency decreases. This reduction in interest rates makes it more attractive for individuals and businesses to borrow money, leading to increased spending and economic growth. However, if there is an excess of money in the economy without a proportional increase in the supply of goods and services, inflation may occur.

The inflation rate plays a significant role in determining the value of a currency. It measures the rate at which prices of goods and services, in general, are rising. While a moderate level of inflation indicates a healthy economy, excessive inflation can cause economic instability, ultimately resulting in the depreciation of a currency.

The inflation rate and interest rates of a country heavily influence its economy. If the inflation rate rises too high, the central bank may counteract it by raising interest rates. This encourages people to reduce spending and instead save their money. It also stimulates foreign investment and attracts more capital to enter the market, increasing the demand for the currency. Consequently, an increase in a country’s interest rate leads to the appreciation of its currency. Conversely, a decrease in interest rates leads to currency depreciation.

Political and economic stability
The economic and political conditions of a country can also impact the fluctuation of its currency’s value. While investors appreciate high interest rates, they also value the predictability of their investments. Therefore, currencies from politically stable and economically sound countries generally experience higher demand, resulting in higher exchange rates.

Market participants continuously assess the current and expected future economic conditions of countries. In addition to changes in money supply, interest rates, and inflation rates, key economic indicators such as gross domestic product, unemployment rate, housing starts, and trade balance (the difference between a country’s total exports and total imports) are monitored. A strong and growing economy, as indicated by these factors, tends to appreciate the currency as demand increases.

Similarly, robust political conditions positively influence currency values. If a country faces political unrest or global tensions, its currency becomes less appealing, leading to reduced demand. Conversely, if a market witnesses the emergence of a stable government or the anticipation of strong future economic growth, the currency may appreciate as people invest based on positive news.

Important to note
Currency fluctuations cannot be attributed to a single indicator, nor can they be predicted with absolute certainty. Instead, multiple factors related to supply and demand contribute to these fluctuations. However, it has been observed that a deeper understanding of market conditions and their implications on currency values leads to more accurate predictions.