Get the exchange rate you want for your international money transfer when you place a limit order.
Getting the best possible exchange rate is important whenever you send money overseas, but sometimes current market conditions don’t allow you access to the rate you want. This is where limit orders come to the rescue. A limit order allows you to choose the exchange rate at which you want to buy or sell a currency and your order will only be executed when the rate you want is available. These flexible tools offer a convenient way for you to stay on top of market developments, hedge your transfer and get the exchange rate you want for your transaction.
What is a limit order?
A limit order allows you to choose a target exchange rate for an international money transfer - that is, the rate at which you are hoping to convert your Australian Dollars into another currency to be sent overseas.
This is a very flexible money transfer option that effectively allows you to keep pace with market developments and send money overseas at an exchange rate suitable to you. You can leave your order in place for up to six and even 12 months - if your desired exchange rate is achieved then the order will be triggered, but the order simply won’t be placed if the target rate does not occur.
How do limit orders work?
Trading on global currency markets occurs 24 hours a day, which might ordinarily mean that you might miss out on an attractive exchange rate overnight while you’re fast asleep. Limit orders are basically a way for you to get your money transfer company to monitor currency markets for you.
All you have to do is tell your money transfer provider your desired rate, how long you’re willing to wait for the order to be placed, the currency you wish to buy or sell and the amount you wish to purchase. You can then sit back and wait as your money transfer provider watches currency markets to see if your desired exchange rate can be achieved - if it can, your order will be placed.
For example, with the current exchange rate at 1 AUD = 0.69 USD, Greg isn’t quite prepared to send a transfer of $25,000 to the USA until he can get a better rate. He places a transfer limit order and nominates a target rate of 1 AUD = 0.74 USD, and when that rate is reached five months later, the transfer is triggered and Greg’s funds are sent overseas.
What are the types of limit orders?
This article deals with limit orders solely in regards to international money transfers; however, limit orders can be an effective tool across a wide range of investments including shares and commodities.Back to top
How do I compare limit orders?
- The company’s exchange rates. It’s important to check the exchange rates on offer from each money transfer provider to determine how close they are to the mid-market rates. This will give you a better idea of how much the market will need to fluctuate in order for the transfer company to be able to offer you the rate you want.
- Fees charged. In addition to any transfer fee you will have to pay as standard, will you have to pay an extra fee when you place a limit order?
- Length of order. How long will your order be valid for? Some companies will offer orders for up to 12 months while others will only allow you to place orders for 12 months.
- How the order can be placed. Can you place a limit order online, over the phone or maybe using a mobile app?
- Minimum amount. Is there a minimum limit you are required to transfer using a limit order? For example, limit orders placed with OFX need to be for amounts larger than $30,000.
- Notification process. How will each provider notify you once your order has been placed?
What are the pros and cons of limit orders?
- Stay up to date. Limit orders allow you to make the most of market fluctuations, even while you’re asleep.
- Get the exchange rate you want. Limit orders allow you to get better value for money when you send funds overseas.
- Change your order. Until your desired rate is reached, you have the freedom to withdraw or change your order.
- High amounts. Limit orders are typically only available for larger transfers, for example $20,000 or more.
What are the risks of limit orders?
One thing to be wary of after placing a limit order is growing impatient and just accepting the current rate on offer, while another is the fact that you may have to wait months for your order to be executed and you could forget about it.
The other disadvantage of limit orders is that the exchange rate could keep on improving after your desired rate has been reached, but because you’ve already locked in your order you will be unable to take advantage of the rising market rate.
Frequently asked questions
How long are limit orders valid for?
This varies between companies but common deadlines include six or 12 months.
What sort of information do I need to supply to set up a limit order?
You’ll need to let your transfer provider know our target rate, the amount of currency you wish to purchase, how long your order will be valid for and the currency you want to buy or sell.
My limit order was triggered overnight - can I cancel it?
No, orders are binding once triggered.
How is a limit order different to a forward contract?
A forward contract allows you to lock in an exchange rate today for an international money transfer that won’t actually take place until a date up to a year away.
What happens if my target rate is not reached?
If this occurs your funds will simply not be transferred.