If you keep abreast of currency markets and the various domestic, foreign, and economic factors that influence them, you can rationalise the direction of your trades with relative ease, particularly if you are well informed, aware of the geopolitical contexts and overall market trends.
However, what can be less clear is when to make those trades, especially with the currency market being so volatile due to various ongoing tensions, such as Brexit negotiations, and, of course, the pandemic. Thankfully, Currency UK offers a variety of mechanisms that allow you to make the most of your trades and capitalise on your insights without taking unnecessary risks in a volatile market.
Two key questions persist for those who are responsible for international payments within a business, how much of a particular currency do we require and when is the best time to buy it. The first question is often the easier one to answer, by looking at the previous year's orders, current outstanding invoices, or raised purchase order often you are able to build up a fairly clear idea of the amount of foreign currency you will require over the next 2 months. When to buy this currency can be the difficult decision and we often deal with businesses who know how much they require but are often trying to rationalise when is the best time to trade. The good news is that we have a variety of foreign exchange products available that make that decision process easier and help put business owners and finance managers back in control.
Hedging is used in all kinds of financial markets due to its relative simplicity and its effectiveness in reducing uncertainty and giving you or your business a clear and consistent view of your finances. It works by agreeing to a rate that is then guaranteed for all of your FX trades for a set period of time, usually 12 months. You can use the information at your disposal to inform your decision, such as your previous year’s business in that currency, any purchase orders you have already received or business you’ve already guaranteed. This gives you some much-needed certainty in this volatile time, knowing what rate you will receive for all trades in that currency rather than being subject to the movement of the market.
Market orders make use of our advanced trading system and platform. You can pre-determine a rate that is favourable for you to either buy or sell at and when the market hits that rate, the system will trigger and your trades will be made. This is a way of guaranteeing a particular rate (should the market hit it), which is particularly useful if you need a certain rate to ensure profits are not damaged. Of course, there is still some risk involved in whether the markets will hit your desired rate, so you can set a target rate as well as a stop loss to ensure that if you can’t wait for the market to move to your desired rate, you have a minimum rate locked in, to offer protection.
This works similarly to a market order in that it involves our trading systems, but rather than making the trade automatically, it will notify you immediately that the rate has hit a certain level, allowing you to make an informed decision at the time. This option can be preferable in the midst of volatility.
Where does your account manager come in? Having a foreign exchange expert by your side allows you to be presented with the facts of where your currency exposure lies and the available options should you wish to make a trade. Currency UK’s default view is risk-averse and we can present our clients with products capable of helping them mitigate their FX risk and protect their bottom line where possible.
Find out more about our range of corporate FX products and services here.
Posted in Business Resources on Jan 18 2021