5 Things You Need To Know Before Launching A Money Exchange Business
For those with the necessary expertise, a money exchange business can return a considerable profit. Converting and moving currency from one account to another is something that’s essential to the modern, globalised economy.
There’s no shortage of firms willing to provide this service. They earn their profits by adding an extra percentage point or two onto the rate of exchange. Set this price according to the currency markets in order to remain competitive while still turning a profit.
If you’re considering setting up a business of this sort, then you’ll need to answer a few questions. Let’s take a look at five of the most pertinent.
Where Will You Set Up?
Even if you’re going to set up a physical premise, then three things matter above all others: location, location, location. If you’re positioned too close to rival exchange services, then you may find yourself priced out of the market. Think about where might be convenient, and consider doing everything online.
What Regulations Do You Need To Deal With?
Prior to the financial crisis in 2008, the industry was not particularly well-regulated. Now, things are different, with the introduction of the Financial Conduct Authority. You’ll need to apply for a licence before opening your business, and demonstrate that you are a fit and proper person to be handling large quantities of other people’s money.
Do I Need To Hedge?
In order to protect yourself against short-term fluctuations in the currency market, it’s useful to hedge your position via a forward contract. This is a simple means of buying a fixed amount of foreign currency at a fixed rate ahead of time, rather than buying smaller amounts as the need arises. Of course, to do this, you’ll need sufficient liquidity.
What Makes A Money Exchange Business Different From A Bank?
Major high-street banks will happily exchange one currency for another. However, they lack the specialisation to do this efficiently and competitively, and tend to consolidate by lending to a money exchange business, who then go on to perform all of the smaller exchanges independently.
Where Can I Get The Capital?
Before you can get started, you’ll need to have saved up a respectable pot of cash from which to draw. There are several ways of doing this. You might go to a high street lender. But the problem with this is that they will have their own overheads to worry about, and they might turn you away based on a lack of experience or a poor credit history. Another option is to look online for unsecured business loans. The lenders you’ll find are regulated in much the same way as their high-street equivalents, and are usually reliable. A final option is to simply save up a pot of cash prior to the launch of your business.