Peer to Peer Currency Exchange Explained

Currency exchange has traditionally been the realm of banks and exchange bureaus who acted as intermediaries between currency buyers and sellers. But the Internet has enabled a new peer to peer (P2P) currency marketplace which, in recent years, has become a viable alternative to established financial institutions.

How does peer to peer currency exchange work?

The principle behind peer to peer (P2P) currency exchange is simple: Instead of selling currency to a bank, which then sells that currency to other people, you exchange money directly with the other people who need your currency. Thanks to the Internet and mobile devices, you can now connect with people around the world anytime and anywhere – greatly expanding your group of potential trade partners.

Example: You want to exchange 50,000 Swiss francs into British pounds. You connect with a number of people who are interested in buying Swiss francs and exchange francs for pounds directly with these individuals.

What is a peer to peer currency exchange portal?

Years ago, only a savvy few engaged in online peer to peer currency trading and matchmaking using online forums and chat rooms. Since then, the advent of P2P currency exchange intermediaries has made the peer to peer currency market more efficient as thousands of potential trade partners are now pooled under several popular online P2P currency exchange portals.

Some of these portals add extra liquidity by performing trades from their own pool when no peer offers are available. Intermediaries also act as middle-men in transactions, making sure that each party involved receives their money. To do this, the money being exchanged is typically transferred into an account from which it is then distributed to the various parties involved. In exchange for their matchmaking services, these portals charge a fee.

Ireland-based intermediary Currencyfair, which also services Switzerland, is currently among the largest P2P portals on which you can buy and sell currency directly from other peers. This portal lets you define the rate you want to get for your currency. If and when another user agrees to buy currency at that rate, the exchange goes through. You can also choose to exchange at the best available offer.

Currencyfair levies a transfer fee of 3 euros per transaction plus a volume-based fee equal to 0.15% of transactions made between peers. You can also exchange directly with Currencyfair at the inter-bank rate (also known as the “mid-market rate” or “spot-rate”) if you aren’t willing to wait until someone buys your currency, but doing this is more expensive with a fee of 0.4% - 0.6%.

UK-based peer to peer transfer service Wise (TransferWise), which can also be used in Switzerland, transfers currency between accounts at the inter-bank rate (Currencyfair also offers this service). In addition to making cost-effective transfers to third parties in foreign currencies, you can also use this service to transfer currencies between your own accounts in different countries and currencies. On the whole though, Wise is primarily a P2P transfer service and not a P2P currency exchange.

The fees charged by Wise (minimum CHF 1.50) depend on the currency in question. For CHF to EUR or USD transactions, the Wise fee is equal to 0.5% of the amount being changed. Less widely used currencies command higher fees (CHF to THB = 1% fee, CHF to RUB = 1.5% fee, CHF to ZAR = 0.7% fee).

An interesting alternative is presented by P2P portals which let you connect with other individuals in need of your currency and meet in person to exchange money in cash at a pre-defined rate. While portals like Cashtogether and Weswap have brought some interesting ideas to the table, there are, as yet, few real up-and-running portals of this type.

What are the advantages of peer to peer currency exchange?

The biggest advantage of P2P exchanges over banks are the exchange rates used. P2P portals generally use inter-bank rates, while banks use their own exchange rates which generally have a wide spread above the inter-bank rate.

Are P2P portals available in Switzerland?

Switzerland does not yet host any large P2P currency exchange and transfer portals. However, Currencyfair and Wise have bank accounts in Switzerland from which money is transferred to or from your Swiss bank accounts. Other P2P portals are not as well established internationally.

What are the best alternatives to P2P currency exchange?

Changing money at banks and exchange bureaus is generally more expensive than using P2P services. However, some currency brokers offer rates comparable to P2P portals. Examples of currency brokers include exchangemarket.ch, Wechselstube (which caters to businesses) and foreign brokers such as UK-based Currencies Direct. Brokers may actually work out cheaper than P2P portals for certain currency transactions.

If your primary interest is in transferring money rather than exchanging currency, read the moneyland.ch guide to sending money overseas.

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Peer to peer money transfers
Sending money overseas