If you have to make a transfer overseas, but the exact date is flexible, a well-placed limit order could get you a good deal.
What is a limit order?
With a limit order, you set instructions to carry out your transaction — a forex trade or money transfer, for example — once the market price reaches your specified exchange rate.
Why is a limit order useful?
Maybe you think a currency is overvalued right now, and want to wait for its price to go down. You could set up a rate alert, but you’d run the risk of your target exchange rate being reached at a time when you can do nothing about it (for example, you may be asleep).
With a limit order, once your goal rate becomes available, the transfer will be locked in and carried out automatically.
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Anika’s nephew, who lives in India, is turning 21. As a gift, she wants to contribute £2,000 to his savings. However, the Rupee has recently gone up in price, with £1 being worth 82.0 INR, making her gift amount to 164,000 INR. Believing the Rupee will go back down, Anika places a limit order requesting an exchange rate of GBP/INR = 85.8. Nine days later, this rate is reached, and 171,600 INR is sent to her nephew’s account.
Thanks to the limit order, Anika managed to send an extra 7,600 INR to her nephew.
Table: sorted by a combination of service offering and the amount your recipient will receive
Disclaimer: Exchange rates change often. Confirm the total cost with the provider before transferring money.
Are there any drawbacks?
Limit orders do not guarantee that your transfer will happen, as they rely on the exchange rate reaching the specified value.
For example, maybe you think the dollar will go down — but what if it keeps going up? If you placed a limit order hoping the dollar would go down, you may find yourself waiting endlessly.
A common tactic, known as a one-cancels-the-other (OCO) order, is to combine a limit order with a stop-loss order. This means if the market goes in the opposite direction to what you had hoped, your losses are capped. As the name suggests, once either the limit or the stop-loss order is triggered, the other is cancelled.
Frequently asked questions
Yes, some do. But limit orders are usually seen on forex trading platforms, where investors speculate on global currencies.
Check the mid-market rate between the two currencies you’re trading. The mid-market rate is what your money’s actually worth on the global market compared to another currency. It’s the midpoint between worldwide supply and demand for that currency — and the rate banks and transfer services use when they trade among themselves.
Use the mid-market rate as a baseline to compare against the rates provided by your bank or transfer service.
Compare multiple money transfer providers. You may find a good rate at one provider but later find an even better rate elsewhere. We’ve compared the top money transfer providers to help you find the best rates.
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