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What is the Best Day To Exchange Currency?

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2021
What is the Best Day To Exchange Currency?

Obviously, people want the best rate when it comes to currency exchange and some people ask themself when is the best time to exchange currency? Does it really matter which day of the week you are exchanging your money? What if you will get a better rate if you exchange your money at a specific time of the day?

The first question you have to ask is why are you changing your local currency CAD for another currency? Usually it’s one of a few things, you are an immigrant and want to exchange the funds that you brought with you, going on vacation as a tourist, buying an item to import such as an automobile or trailer, or you are in the import/export business and you are buying/selling goods across a border.

Each of these transactions are different, however the outcome is the same, to get the best price.

Brief background on FOREX trading times

A lot of people believe that foreign exchange is 24 hours a day, seven days a week market, yes and no. It does trade 24 hours a day when it’s open, however it’s open five and half days a week. Major currency trading starts in the Far East, Japan, at 5 p.m. Eastern Standard Time, Sunday evening and generally stops at 4 p.m EST on Friday. During these times one can expect to be made a price within the confines of the market. Foreign exchange is traded in all major countries and is highly unregulated as most countries will allow their respective currencies to trade in most markets. Countries such as China, Brazil and Russia do peg their currencies, that is, they state what their currencies are worth to other countries, in particular the U.S. dollar and the Euro, but it can be traded against other currencies.

So when is a good time to exchange currency?

There are websites that have you believe that some days are better than others, but this is not an exact science no matter how far back charts go historically. There are correlations when markets impact each other. This chart shows how the Canadian dollar became weak when the Dow Jones Industrial Average fell at the start of the Covid-19 crisis. As equity markets started to shake off the initial bad news, the Canadian dollar got stronger to the USD. This is not a “best day” trading decision but rather a long term outlook as it illustrated on the below Yahoo Finance chart.

DJI and CAD fluctuation from March to December 2020

That being said, FX pricing is determined by political events, economic events, trade figures, investors’ confidence and possibly the weather.

If you are buying vacation funds then most of these factors mean that if the currency drops low enough you buy it, and if you wait to the last minute before your flight leaves you still buy it, no matter the price. The key is that you are getting a better price than dealing with your bank which usually charges a significant spread, a handling fee and a possible wait for the funds to arrive, thereby dealing with a currency exchange gets you the best price that day.

The one time FX transaction

This is when you might have sold your condo in Vancouver or Toronto to buy another condo in the States, the funds are significant enough that you watch the currency markets a lot more closely. A 100 basis points movement on $250,000 is $2,500, which is why you watch the market with greater attention. For amounts like this, the pricing is now dependent on when and where you get your price. While there is no set day, liquidity, that is the ability to sell or buy quickly, is usually tied to trading volumes and that is generally during the mid-week or when economic data is released. It is more a case of when not to sell, don’t sell Friday afternoons as the price you receive will have a large spread built in  as the financial institution you are dealing with is taking on a risk that they cannot hedge until Sunday night, the same goes for Saturdays. Therefore, you want to sell/buy between Monday to Thursday, yes you can trade Friday morning, but you don’t get your funds till Monday or Tuesday of the following week.

Who you transact with can be the biggest savings or gains rather than the day of the week. Let’s continue with our $250,000 USD, whether you are buying or selling, the spread on the transaction is usually the same, that is the amount over or under the market rate which is the institution’s profit.. When you go to large bank websites, you may see the spread they add or subtract from the market rate, usually they use their spreads can be quite large and it’s not uncommon to see 125 basis points. That means if the USDCAD has a market rate of 1.3000, the bank charges you 1.3125 for you to buy USD or gives you 1.2875 to sell your USD to them. The potential profit to the bank is $3,125 Canadian; a lot of money. If you deal with a money service business, the spreads charged tend to be less and will likely range from 35-70 basis points, $875-$1,750 profit for the MSB. If it’s 35 basis points for example and using the same market price of 1.3000 then the respective prices would be 1.3035 if you are buying and 1.2965 if you are selling which is a lot cheaper or less gains.

USDMarket RatePointEX RateCADYou’ve Charged
Currency Exchange
Agency
250,0001.3000351.2965324,125875 CAD
Bank250,0001.30001251.2875321,8753,125 CAD
Bank vs Money Exchange Agency – Exchange Rates

As it can be seen, the true savings on the transaction is who you deal with, rather than dealing mid-week. Remember, that for the past four years markets, equities and currencies were moving on the latest tweet that President Trump just issued, no rhyme or reason.

Currency exchange for Import/Export

Importing/Exporting is different to the other transactions, FX rates and the spread charged on currency transactions are crucial to these types of businesses. A far more in depth knowledge of currency markets is required to be able to exchange with the best rates. A conservative approach to currency transactions is not what day of the week it is but rather what are my payment or receipt dates and can I hedge them?

Primarily there are three methods of forex hedging; spot contracts, currency options and forward contracts. There are other methods, range spreads/ straddles, rate of interest, and so on. These tools can become quite complex and it may cost you money without you knowing it.

In the case of an importer who needs to purchase parts from the U.S. each month for a year, it is best to hedge your costs in order to lock in part of your profit and remove some of the variables. Some traders believe that a three way split using spot, options and forward contracts. 

Spot Transaction

The spot transaction is simply converting the required funds on the required dates with no link as to what the budgeted costs are. The pros offset the cons on these transactions, the market will be higher or lower to the original budget and as such is calculated as an additional item.

Currency Options

Currency options allow you to buy the currency that you want at a preset price and with a preset expiry date. The advantage to this is that if you are buying USD and when the funds are needed you can either exercise the option or not depending on where the market is.If the USD is cheaper than the exercise price, you let the option expire worthless and purchase in the spot market. Usually thecost of the option can be a bit more expensive than a forward contract, however, options are easily bought and sold unless your financial institution provides a customized option plan and they can price it to their benefit.

Forward Contracts

The final method is using forward contracts, these also give you the ability to purchase at a preset price on a preset date, the main difference to options is that you are locked in to these rates. As in the previous example, the USD is cheaper on the expiry date, you cannot let the forward expire, you have to purchase the USD at the agreed upon rate. This is the downside of the hedge. This method of hedging is not perfect but it allows the hedger some degree of comfort by locking in part of the potential profits with some allowance of any potential market moves, good or bad.

Best days for currency exchange in Canada?

In the past, U.S. multinationals and other foreign multinationals would have their Canadian subsidiaries pay their dividends to their parent companies in the last month of the calendar year. The Canadian dollar would generally get weaker, as there was a great deal of selling of the Canadian dollar to buy USD, GBP or Euro. This doesn’t seem to be the case as much, due to the volatility of the USDCAD over the course of the year, it would be unwise to book at the end of the year only. Treasurers are more hands on in terms of their forex exposure and are likely to stagger their purchases in order to smooth the effect of the year’s trading. Therefore the December one way volumes have diminished as such.

Unless you are a Forex day trader and this is your bread and butter and you have the ability to trade with a narrow spread, there are occasions that may be better days than others. But these are for traders, someone who is willing to take a position on a currency in front of some form of economic or political announcement. Once the announcement is released there is a flurry of activity and the currency reacts accordingly. The trader may be on the right side of the release, the expected outcome, or on the wrong side and the trader takes a loss. Traders no matter what product they are buying or selling will always look for something that gives them an edge, and guessing which days are better than others is one of them.

Conclusion

This article has given a few ideas on how to hedge and possibly when to hedge but it is not the only way to hedge there are other ideas that are out there. You should always do your homework especially when it is your company’s profit that you are keeping. Hedging is not a way of adding profit, it is a way of keeping it. Not perfect but definitely a conservative approach.

There is no specific best day to exchange currency, different factors such as political, economical factors, etc. play roles on currency exchange rates. The best way to save money when you are exchanging currency is to choose a reputable currency exchange who provides good service, competitive pricing and the ability to provide ideas and advice if necessary.

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