Peer-to-peer (P2P) lending platforms are attracting both novice and seasoned investors, and it’s easy to see why. While each P2P firm has its own model, Business Standard notes that 15-25% return rates can be gained annually from these platforms. Investors can certainly earn more via P2P since the platform doesn’t go through financial institutions and instead supports the borrowing and loaning of money between individuals.
But P2P networks allow for more than matching lenders and borrowers — they can also serve as a marketplace for exchanging currencies.
What to Know About P2P Foreign Exchange
Traditionally, currencies are exchanged through financial institutions such as banks and exchange services. A guide to how foreign exchange works by FXCM highlights that anyone who’s traveled overseas has made a forex transaction. Even paying for your meal with a credit card is a form of forex transaction through your bank. These institutions are intermediaries of this particular service. However, they are also notorious for charging high exchange rates. For instance, Investopedia notes that airport kiosks offer the worst rates, but continue to make good profits. That’s mainly because they cater to an immediate demand — travelers need cash in the local currency to pay for things like food and transport. ATMs and local banks offer relatively better rates, but P2P foreign exchange services promise the lowest rates.
P2P foreign exchange platforms are able to offer cost-saving solutions because of how they’re set up. Similar to P2P lending, these firms eliminate the need for intermediaries or middlemen who make huge commissions from facilitating the exchange of currencies. Instead, they directly connect you to other individuals or entities who need to exchange their currency for yours. To take a similar example, our article on the ‘Best Cryptocurrency Exchange in Australia 2022’ states that Elbaite allows investors to buy and sell cryptocurrencies directly from other traders. So instead of paying big cuts to financial institutions, crypto investors simply need to pay a small fee to facilitate the currency exchange.
However, a few things to note about these firms is that not all will deal in a currency that’s not highly traded. There might not be any individuals wanting to exchange with you simply because they don’t need it. If that’s the case, you’ll need to go to a traditional foreign exchange service.
Getting Started on P2P Foreign Exchange
Exchanging currencies through P2P networks isn’t complicated. The particular steps will, of course, vary depending on the firm, but the process is more or less the same. You need to register for a P2P foreign exchange firm usually through their website or app. After which, you can deposit the funds you need to exchange and look for an exchange rate that’s acceptable to you. After matching, you can make the transaction and receive the funds 1-3 days later through bank deposit, delivery, or pick-up depending on the terms.
Here are a few more things to keep in mind when getting started:
• Consider flexibility in matching: You can set the exchange rate and wait for an internal match from the firm. However, some sites offer greater flexibility by allowing you to choose who to transact with.
• Choose a firm with high liquidity: Finding a firm that trades in high volume means you’ll be able to have smoother transactions and more amenable rates. FinTech Futures points out the need for high liquidity, which is why bigger corporate clients don’t find P2P forex services useful. High trading volume increases the company’s liquidity. This means that even if there is no internal match, individuals or smaller companies will still be able to exchange their currency using the company’s own funds.
• Choose an authorized service: It goes without saying that checking the legitimacy of a firm before signing up is a must. See if the platform is authorized by financial authorities within your country. These authorities often impose regulations that protect users from fraud as well as in cases of financial difficulty for the company.
Peer-to-peer services make it easier for investors to exchange assets at a lower rate. Through careful research and choosing the right platform, you can guarantee a smooth, safe, and hassle-free currency transaction that you might not find with traditional options.