How to avoid risk when trading in foreign currency
How to find a safe haven for your cash in the perfect FX storm
If you are trading overseas, whether buying or selling, waking up to the morning rates is a bit like finding it has snowed overnight. The whole world can look different.
Every international trade transaction represents a currency exchange risk to either the exporter or importer and the risk is being exacerbated as the pound has weakened against the euro and the US dollar.
Many UK exporters believe that they can eliminate the risk by invoicing in sterling. But this approach merely transfers the foreign exchange risk to their overseas customer. And, in any case, if you insist on invoicing in sterling, you may end up losing potential sales to competitors, who will happily invoice in the buyers’ preferred currency.
Offering to invoice in the currency of your overseas customer can provide a strong competitive advantage. But you should bear in mind that trading in foreign currency carries a significant financial risk. Foreign exchange (FX) brokers specialise in saving people money by getting them better exchange rates than any bank can offer, according Mark Deans, the corporate dealing manager at one such organisation, Moneycorp. “We can give our clients access to the inter-bank rate thanks to our long-established connection to major banks,” he explains.
More than ever, as rates jump around like firecrackers, Dean stresses that it’s a great boon to have real-time information, to be able to pay bills and transfer cash in minutes,whether you are managing your foreign exchange on a spot basis or negotiating forward contracts. “Brokers can help you weather the storm,” he says. “Transactions go though faster than they would within the UK banking system, too.
“The risk of having all the profit on a deal wiped out is too great these days to go in unprotected. The days when rates hovered around the same levels for months at a time, and any changes were gradual, are well and truly over” he says.