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Forex For Converting Funds?

  • #1
  • First Post: Jul 12, 2005 5:22am Jul 12, 2005 5:22am
Hello everyone!
Newbie alert!

I was introduced to forex for a very specific reason. I own 2 bank accounts. 1 is CAD and 1 USD. I regulary need to transfer found from USD account to the CAD account. Of course I always want the best rate! Since the amount of the transfers is sometimes higher than 10K a small increase of the exchange rate make a big increase in profit. I knew that my local banks were not the solution. I then tried the XE.com Trade service and was very disapointed to see that their exchange rate was much lower than those produced by their free conversion tool.
When their free service shows 1.2200 their trade service will show something like 1.2100 (-100 PIPS?).
Anyway I then discovered forex and I keed learning since this moment. I have a demo account with Global Forex Trading.
I know that forex is for trading and will eventualy trade but I wonder if I can open a live account for CONVERTING funds?
Can I open the account, deposit USD funds (±10K), enter the market at a specific rate, stop as soon as possible and run with the CAD money?
Thank you for your help!
  • #2
  • Jul 12, 2005 4:11pm Jul 12, 2005 4:11pm
unfortunately the forex market can not help you make easy transfers. if you deposit USD at a broker, you can not pull out CAD. your account remains USD denominated.

forex trading can, however, help you elliminate the exchange rate risk between your two bank accounts.

say you are living in canada and have a 100k bank acount CAD denominated. if you know that you will need to convert your CAD into USD at some point, but you dont want to have exchange risk, you would go long 1 lot (100k) of the USDCAD. when you convert your cash from CAD to USD, you would close your position.
Relax and be happy.
  • #3
  • Jul 12, 2005 4:21pm Jul 12, 2005 4:21pm
Quoting JohnWinner
Hello everyone!
Newbie alert!

I was introduced to forex for a very specific reason. I own 2 bank accounts. 1 is CAD and 1 USD. I regulary need to transfer found from USD account to the CAD account. Of course I always want the best rate! Since the amount of the transfers is sometimes higher than 10K a small increase of the exchange rate make a big increase in profit. I knew that my local banks were not the solution. I then tried the XE.com Trade service and was very disapointed to see that their exchange rate was much lower than those produced by their free conversion tool.
When their free service shows 1.2200 their trade service will show something like 1.2100 (-100 PIPS?).
Anyway I then discovered forex and I keed learning since this moment. I have a demo account with Global Forex Trading.
I know that forex is for trading and will eventualy trade but I wonder if I can open a live account for CONVERTING funds?
Can I open the account, deposit USD funds (±10K), enter the market at a specific rate, stop as soon as possible and run with the CAD money?
Thank you for your help!
Hi John, and welcome to forex factory!

I think you could do this with Oanda (www.oanda.com). They do accounts in both USD and CAD. It is also possible to own a sub account - effectively two accounts. When I set up my sub account one of the questions I had to answer what what currency to base it in, so it should be possible to have your main account in USD and your sub account in CAD. You can transfer funds back and forth between accounts (effectively doing a currency exchange without even trading?). Check out this page:

http://fxtrade.oanda.com/faq/account_faq.shtml#3

No guarantees that you can do that, but it sounds like you should be able to. It's probably worth asking them anyway.

Hope that helps.

James
  • #4
  • Jul 12, 2005 4:23pm Jul 12, 2005 4:23pm
Quoting merlin
unfortunately the forex market can not help you make easy transfers. if you deposit USD at a broker, you can not pull out CAD. your account remains USD denominated.

forex trading can, however, help you elliminate the exchange rate risk between your two bank accounts.

say you are living in canada and have a 100k bank acount CAD denominated. if you know that you will need to convert your CAD into USD at some point, but you dont want to have exchange risk, you would go long 1 lot (100k) of the USDCAD. when you convert your cash from CAD to USD, you would close your position.
Good thinking, Merlin! That would work.

James
  • #5
  • Jul 12, 2005 6:53pm Jul 12, 2005 6:53pm
Merlin I am not sure if I understand your exchange risk strategy. It will come over time I guess. I did not know about the USD account only. Though we can withdraw in whatever currency we wanted. Thanks to let me know!

RedLeg thank you very much for OAndA web site. It seems perfect for what I want to do. I'll ask to be sure and let you know here.
The only bad thing is the high fees of Wire transfer but it worth the money!
Maybe I'll find a service wich offer CAD and USD accounts AND EFT payment.

Now I know what to look for.
Thank you!
  • #6
  • Jul 12, 2005 8:09pm Jul 12, 2005 8:09pm
Quoting merlin
unfortunately the forex market can not help you make easy transfers. if you deposit USD at a broker, you can not pull out CAD. your account remains USD denominated.

forex trading can, however, help you elliminate the exchange rate risk between your two bank accounts.

say you are living in canada and have a 100k bank acount CAD denominated. if you know that you will need to convert your CAD into USD at some point, but you dont want to have exchange risk, you would go long 1 lot (100k) of the USDCAD. when you convert your cash from CAD to USD, you would close your position.
.... thinking about this more .... it would eliminate the risk of the forex market moving on you, but it would not solve the problem of exchange services charging exorbitant spreads.

James
  • #7
  • Jul 12, 2005 8:10pm Jul 12, 2005 8:10pm
Quoting JohnWinner
Merlin I am not sure if I understand your exchange risk strategy. It will come over time I guess. I did not know about the USD account only. Though we can withdraw in whatever currency we wanted. Thanks to let me know!

RedLeg thank you very much for OAndA web site. It seems perfect for what I want to do. I'll ask to be sure and let you know here.
The only bad thing is the high fees of Wire transfer but it worth the money!
Maybe I'll find a service wich offer CAD and USD accounts AND EFT payment.

Now I know what to look for.
Thank you!
Your welcome. Hope it works for you.

James
  • #8
  • Jul 16, 2005 4:46pm Jul 16, 2005 4:46pm
Quoting JohnWinner
Hello everyone!
Newbie alert!

When their free service shows 1.2200 their trade service will show something like 1.2100 (-100 PIPS?).
!
I've been through this for some time and can tell you that the best rates I've found for converting large amounts of currency have been with xe.com. The rates they quote on their converter are mid market (no spread) rates. Nobody will give you those rates because there is no profit by trading at mid market.

If you call them you can negotiate very attractive and painless exchange rates. I have exchanged for as low as a 25 pip spread (12.5 either side of mid market). Show me a better rate anywhere -- especially when you can use EMT which costs you nothing for wire fees. It is fast and carries no risk. When you try to use hedging strategies with forex it is not always quick and painless.

I don't get why you have a problem with XE.com charging a spread. If they didn't they would not make money and would not exist. The spread at banks is frequently measured in cents not in pips. I've consistently seen 5 cent (and larger) spreads with banks and exchange companies (100 pips per cent). Hyperwallet charges more than 400 pips and it is supposed to be a good rate.

There are some brokers who will give you a spot market account. FXCM has a department that will allow you to open a spot market account but you'll be trading 100k increments. That may have changed that since I last spoke to them but, last I checked, it was not the kind of account someone would open if they are concerned about wire transfer fees.

FT
  • #9
  • Jul 16, 2005 6:43pm Jul 16, 2005 6:43pm
Quoting Redleg
Hi John, and welcome to forex factory!

I think you could do this with Oanda (www.oanda.com). They do accounts in both USD and CAD. It is also possible to own a sub account - effectively two accounts. When I set up my sub account one of the questions I had to answer what what currency to base it in, so it should be possible to have your main account in USD and your sub account in CAD. You can transfer funds back and forth between accounts (effectively doing a currency exchange without even trading?). Check out this page:

http://fxtrade.oanda.com/faq/account_faq.shtml#3

No guarantees that you can do that, but it sounds like you should be able to. It's probably worth asking them anyway.

Hope that helps.

James
Here is the answer from the FAQ you posted:

Can I change my account currency?
No. The currency of an account cannot be changed.

Usually the reason MM's do not allow currency exchange is due to the licensing requirements and also the onerous disclosure regulations due to laundering issues that most, or perhaps all, mm's don't want to go into the currency exchange business.

FT
  • #10
  • Jul 16, 2005 9:18pm Jul 16, 2005 9:18pm
I am reassured to know that using XE.com I will have a very good rate.
Since using FX to exchange money seems a big no-no and also considering that I know very little about FX trading I think XE.com is my best solution.
Wire transfer fee is also not negligeable and XE provide free EFT (or EMT like you said) payment like you said. I'll go the easiest and safest way.
Thank you for your post fijitrader.
  • #11
  • Jul 17, 2005 6:17am Jul 17, 2005 6:17am
Quoting merlin
unfortunately the forex market can not help you make easy transfers. if you deposit USD at a broker, you can not pull out CAD. your account remains USD denominated.

forex trading can, however, help you elliminate the exchange rate risk between your two bank accounts.

say you are living in canada and have a 100k bank acount CAD denominated. if you know that you will need to convert your CAD into USD at some point, but you dont want to have exchange risk, you would go long 1 lot (100k) of the USDCAD. when you convert your cash from CAD to USD, you would close your position.
With this approach you eliminate the risk of losing more than the price you peg the dollar at when you buy but you also eliminate the reward of the price moving favorably which is also a kind of risk in that you risk losing the reward. Also anyone attempting this kind of hedging has the opportunity to screw with the trade as it goes in their favor or against them and novices make a lot of mistakes attempting this -- especially with large amounts.

Next there is the relatively small cost of the forex trade which may be only 3 to 5 pips. Let's say the forex trade goes against you and you see your forex account dropping by hundreds and then thousands of dollars. No problem you hang in there because you know that when you make the cash trade you'll win the amount you lost in your forex account. Indeed but then you find out that the bank you are dealing with who does the conversion wants a 700 pip spread and guess what you were at the bank when the trade was made and did not have somene at your computer to close the trade the exact moment you made the bank exchange and therefore took another 70 pip slip on your forex account when you got there to close it ... or you closed the trade before going to the bank and got hit that way. Or you find out that the bank who charges the 700 pip spread only quotes prices a couple of times a day except when there are unusual moves and you take another hit there because of forex account movement during that time the market has moved 75 pips against you. The bank is covered by their giant spread but you are not.

Hedging works when done properly but is not for beginners. Much of the currency hedging by businesses is done with futures contracts. That is one of the things they are precisely designed for.

FT
  • #12
  • Jul 17, 2005 6:19am Jul 17, 2005 6:19am
Quoting JohnWinner
I am reassured to know that using XE.com I will have a very good rate.
Since using FX to exchange money seems a big no-no and also considering that I know very little about FX trading I think XE.com is my best solution.
Wire transfer fee is also not negligeable and XE provide free EFT (or EMT like you said) payment like you said. I'll go the easiest and safest way.
Thank you for your post fijitrader.
My pleasure

FT
  • #13
  • Jul 18, 2005 9:36am Jul 18, 2005 9:36am
Quoting fijitrader
Here is the answer from the FAQ you posted:

Can I change my account currency?
No. The currency of an account cannot be changed.

Usually the reason MM's do not allow currency exchange is due to the licensing requirements and also the onerous disclosure regulations due to laundering issues that most, or perhaps all, mm's don't want to go into the currency exchange business.

FT
FT,

I may be wrong, but I don't think this rules out what I was suggesting. I'm not suggesting changing the currency of any account - I'm suggesting having two accounts based in differing currencies and transferring funds between them.

My main account with Oanda is based in USD. When I opened a sub account, one of the questions I had to answer was what currency I wanted the sub account based in. So it seems possible to have two accounts (one main, and one sub) based in different currencies.

There is a function on Oanda for transfering funds between main and sub accounts. As long as this function works when your accounts are in different currencies (and there is no premium charged), you should be able to effectively convert $$ to CAD and back again at will. Then you could withdraw $$ from the $$ account, and withdraw CAD from the CAD subaccount.

This is not something I've done and I'm making a couple of assumptions, but I don't see anything in Oanda's stated rules or FAQ that would prevent it.

James
  • #14
  • Jul 20, 2005 6:14am Jul 20, 2005 6:14am
Quoting Redleg
FT,

I may be wrong, but I don't think this rules out what I was suggesting. I'm not suggesting changing the currency of any account - I'm suggesting having two accounts based in differing currencies and transferring funds between them.

My main account with Oanda is based in USD. When I opened a sub account, one of the questions I had to answer was what currency I wanted the sub account based in. So it seems possible to have two accounts (one main, and one sub) based in different currencies.

There is a function on Oanda for transfering funds between main and sub accounts. As long as this function works when your accounts are in different currencies (and there is no premium charged), you should be able to effectively convert $$ to CAD and back again at will. Then you could withdraw $$ from the $$ account, and withdraw CAD from the CAD subaccount.

This is not something I've done and I'm making a couple of assumptions, but I don't see anything in Oanda's stated rules or FAQ that would prevent it.

James
I cannot comment about Oanda but I talked to others and none permitted that. I suspect that sub accounts must be in the same currency to transfer between them. My reasoning is that they need to be registered exchange merchants in order to permit what you are talking about. That usually requires a whole department to manage and it also attracts huge regulatory filing requirements along with substantial overhead which is why being in the currency exchange business usually has such a wide bid/ask spread. However it is not impossible that Oanda did that. However when they say you cannot change your base currency I cannot think of anything else it applies to.

FT
  • #15
  • Edited 10:26am Jul 20, 2005 10:19am | Edited 10:26am
OK, I quit theorizing and just asked them. Here is the reply Oanda sent me:

Dear James:

Thank you for your continued interest in OANDA's FXTrade. At this time, the following currencies are available for deposit/withdrawal for FXTrade accounts:

*US Dollar (USD)
*Australian Dollar (AUD)
*Canadian Dollar (CAD)
*Euro (EUR)
*Great Britain Pound (GBP)
*Swiss Franc (CHF)
*Japanese Yen (JPY)

You may have any of the above currencies for your Sub-Account(s). You may also directly deposit and withdraw funds to/from your primary and secondary FXTrade account(s). The rates posted in the FXTrade Platform would apply. To transfer funds between your FXTrade accounts, please use our online form located at:
http://fxtrade.oanda.com/feedback/fund_transfer.shtml

At time of withdrawal, please be advised that it is our policy that we process withdrawal requests via the same method from which they were received to the same bank/PayPal account and in the same currency as the original deposit. If required, conversion would be done at the rates posted in the FXTrade Platform.

To create one or more sub-accounts, please provide us with the following information:

1. Your primary account number and username ([edited])
2. Desired currency of each sub-account.
3. Desired leverage of each sub-account.
4. Name on each sub-account (optional).

Please feel free to contact us if you have any questions.

Kind Regards,

OANDA FXTrade Team(DC)
http://fxtrade.oanda.com

edited to add: in other words yes, you could do this and get forex rates for the currency conversions. You would want to make initial deposits of dollar (main account) and CAD (sub account) so that no issues arise for withdrawing money in the currency needed.

James
  • #16
  • Jul 20, 2005 7:03pm Jul 20, 2005 7:03pm
Quoting Redleg
OK, I quit theorizing and just asked them. Here is the reply Oanda sent me:


edited to add: in other words yes, you could do this and get forex rates for the currency conversions. You would want to make initial deposits of dollar (main account) and CAD (sub account) so that no issues arise for withdrawing money in the currency needed.

James
Cool. Thanks for finding out. I was too busy to bother getting in touch with them to find out. What country are they in? Obviously not the US or Canada or they'd have currency exchange regulators down their throats with wire brushes.

FT
  • #17
  • Jul 21, 2005 10:37am Jul 21, 2005 10:37am
Quoting fijitrader
Cool. Thanks for finding out. I was too busy to bother getting in touch with them to find out. What country are they in? Obviously not the US or Canada or they'd have currency exchange regulators down their throats with wire brushes.

FT
I know that they have an office in New York and that they are incorporated in the US ... I checked them out with Better Business Beaurea (sp?) when I got an account with them.

Don't know how the regulators fit in. Maybe they meet the requirements or something.

James
  • #18
  • Jul 25, 2005 5:39pm Jul 25, 2005 5:39pm
Quoting Redleg
OK, I quit theorizing and just asked them. Here is the reply Oanda sent me:

Dear James:

Thank you for your continued interest in OANDA's FXTrade. At this time, the following currencies are available for deposit/withdrawal for FXTrade accounts:

*US Dollar (USD)
*Australian Dollar (AUD)
*Canadian Dollar (CAD)
*Euro (EUR)
*Great Britain Pound (GBP)
*Swiss Franc (CHF)
*Japanese Yen (JPY)

You may have any of the above currencies for your Sub-Account(s). You may also directly deposit and withdraw funds to/from your primary and secondary FXTrade account(s). The rates posted in the FXTrade Platform would apply. To transfer funds between your FXTrade accounts, please use our online form located at:
http://fxtrade.oanda.com/feedback/fund_transfer.shtml

At time of withdrawal, please be advised that it is our policy that we process withdrawal requests via the same method from which they were received to the same bank/PayPal account and in the same currency as the original deposit. If required, conversion would be done at the rates posted in the FXTrade Platform.

To create one or more sub-accounts, please provide us with the following information:

1. Your primary account number and username ([edited])
2. Desired currency of each sub-account.
3. Desired leverage of each sub-account.
4. Name on each sub-account (optional).

Please feel free to contact us if you have any questions.

Kind Regards,

OANDA FXTrade Team(DC)
http://fxtrade.oanda.com

edited to add: in other words yes, you could do this and get forex rates for the currency conversions. You would want to make initial deposits of dollar (main account) and CAD (sub account) so that no issues arise for withdrawing money in the currency needed.

James
Given the possibility of being able to do currency conversions with 3 pip spreads I called them and asked the same question thinking they would tell me the same thing they told you. I was ready to open an account just for converting EUR USD AUD and NZD... all currencies that I use. Regardless the guy I spoke to told me that if I wanted to withdraw funds it had to come out in the currency it came in and that I could not mix currencies between accounts.

I asked a few more questions and he was adamant that you cannot use them as a currency conversion service.

This seems to contradit their email to you.

In your post there is a section where it says "edited to add:..." are those your comments or did they add those to their email to you?

FT
  • #19
  • Jul 25, 2005 6:51pm Jul 25, 2005 6:51pm
Quoting fijitrader
Given the possibility of being able to do currency conversions with 3 pip spreads I called them and asked the same question thinking they would tell me the same thing they told you. I was ready to open an account just for converting EUR USD AUD and NZD... all currencies that I use. Regardless the guy I spoke to told me that if I wanted to withdraw funds it had to come out in the currency it came in and that I could not mix currencies between accounts.

I asked a few more questions and he was adamant that you cannot use them as a currency conversion service.

This seems to contradit their email to you.

In your post there is a section where it says "edited to add:..." are those your comments or did they add those to their email to you?

FT
Hi FT,

"edited to add" was my comments on their email. Everything from "Dear James" to the fx hyperlink was a cut and paste of what they sent me.

Sounds like someone from their help desk is sending out bad information ... either to you or to me.

James
  • #20
  • Jul 25, 2005 7:37pm Jul 25, 2005 7:37pm
Quoting Redleg
Hi FT,

"edited to add" was my comments on their email. Everything from "Dear James" to the fx hyperlink was a cut and paste of what they sent me.

Sounds like someone from their help desk is sending out bad information ... either to you or to me.

James
Well I'm not so sure that Oanda has given conflicting information. You see I don't see anything in the letter they sent you that states that you can exchange ecurrencies. I see ambiguity that would allow you to construe that but the only comments in your post that led me to believe I could exchange currencies through them was from your edited conclusions but not from their notes. I agree the implication can be drawn from their notes but it is not conclusive. Your notes were the only conclusive portion.

I'm inclined to believe the guy I spoke with since I got the impression from both the immediacy of his response, and the sureness of his statements, that he had answered the question before, and knew what he was talking about. Usually I'll notice hesitation or uncertainty when someone is making it up as they go along. He not only answered my question he clarified it so I was left with no uncertainty that I could not do currency exchanges through Oanda. I followed up with two or three other questions to ensure I'd asked it from sufficient perspectives and consistently met up with the same response.

Therefore I'll conclude that it is unlikely that you can do currency exchanges through OANDA. My experience with discussing this with other MM's is that these kind of retail accounts are limited in what they can offer. It is also my understanding that you need to open a spot market account for buying and selling cash on the IB market.

FT
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