Peer-to-peer foreign exchange mechanisms are rapidly gaining popularity, and it’s easy to see why. The foreign exchange market even as of 2014 had surpassed a daily trading volume of $5.5 billion.
In this arena, many peer-to-peer companies usually claim 75-90% savings on the typical fees associated with foreign exchange and the percentage taken from the total transaction by brokers and banks. In addition, peer-to-peer exchanges are almost always completed more quickly.
This is achieved by converting all international exchanges into simple domestic ones. Rather than moving currencies across borders, peer-to-peer firms allow clients to find other users matching their exchange needs and complete the transactions domestically within only a few days. Because this mechanism for foreign exchange is still gaining traction, on occasion it can difficult to find a suitable partner for exchanging less common currencies.
How does regulation work?
Building trust with clients is one of the most important aspects of developing traction for any peer-to-peer network. As a result, many such firms have taken steps toward being registered with regulatory bodies. Though this does not completely protect prospective clients, it can signal that the firm intends to deal in good faith.
One technique for ensuring honest dealing in foreign exchange is known as ringfencing. This means simply that all funds belonging to clients must be segregated by the firm’s own accounts at the end of each working day, protecting clients from loss in the event that the firm falls into financial hardship.
How do I choose a good peer-to-peer firm?
It’s important to always fully understand the risks associated with peer-to-peer exchange. Having said this, there are some basic guidelines that can be followed to choose the right service for your situation.
A good first step is to check the regulation status with relevant agencies, and whether or not client funds are segregated from the firm’s. These is always great indicators of the trustworthiness of a firm. Another good sign is the volume of transaction being handled. Make sure that the firm deals with your specific currency. This is especially important for smaller currencies.