How to manage your business’ exposure to foreign exchange

Every business wants minimise losses on foreign exchange and get the best possible return foreign currency transfers. Here are some tips to get started

As anyone who has ever conducted a foreign currency transfer knows, the currency market is an unpredictable, volatile trading platform.

If your business has foreign currency exchange requirements, there are several ways in which you can manage your exposure to currency risk and protect your bottom line.

In this brief guide we introduce you to some of the most cost-effective ways of safeguarding your larger investments and regular transfers from negative exchange rate shifts.

Talk to the experts

You might assume that using your bank is the easiest means of managing your foreign exchange requirements, but it isn’t always the most cost-effective option available to your business.

While there are benefits to using a bank, including minimising the amount of times you need to move your money, currency brokers have measures in place which can help your business limit expenditure in this area.

Over the last 10 years the number of currency brokers has increased considerably to handle the growing number of commercial and private foreign exchange transactions. The majority of brokers will offer the same or similar services and can help your business capitalise on areas like securing a competitive exchange rate and avoiding unnecessary transfer fees. However, factors like fund security and account management should also be considered.

Brokers that are authorised by the Financial Conduct Authority (FCA) offer a far greater level of fund security than those who aren’t, so this is something your business should look for.

From a purely financial point of view, currency brokers tend to work on smaller margins than most banks, meaning the exchange rate they’re able to offer can be as much as 3% better. 3% might not sound like much but can mean the difference of thousands of Pounds on larger transfers – such as the type involved in purchasing overseas real estate.

Develop risk management strategies

With the support and guidance of a leading currency broker, your company can implement effective risk management strategies, helping you minimise loss and get the best possible return on your foreign currency transfers.

There are several specialist services your company may want to consider, from the option of fixing a favourable exchange rate to deploying limit orders or stop loss orders. By securing an exchange rate in advance of a transfer, your company can budget effectively and protect its funds from adverse market movements.

Similarly, with a limit order you can arrange to have your currency purchased as soon as it hits a pre-determined rate, so you won’t miss out on a favourable shift. With a stop loss order, your company can set a maximum or minimum rate at which to purchase the currency you’re targeting, with the transfer being triggered as soon as the exchange rate moves to that level.

Your currency broker will be able to talk you through the risk management options available to you and ensure your business picks adopts the most lucrative strategy. 

Stay on top of the latest developments

An important part of limiting your company’s exposure to currency risk is staying abreast of the latest market movements and exchange rate trends.

While you can do this yourself by checking out the latest data releases and looking at forex charts, currency brokers can make the process easier by consolidating all the information and sending it out as handy regular market updates.

By having some idea of when the market might move in your favour, you give your company the best possible chance of making a profitable currency exchange.

If you want to maximise your company’s profitability, follow the points above and look into your risk management options.

 

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