Planning is the first step to managing your FX risk. Agreeing on a budgeted exchange rate for the year will guide your transactions. Your budgeted rate should take into account the volume and timing of your expected transactions as well as a realistic assumption of current and future rates. An FX specialist can help to define this rate by analysing past trends. Planning ahead will help protect your business from foreign exchange risk and enable you to benefit from any exchange rate movements which are in your favour. This could make a huge difference to your bottom line.
When trading internationally you will invariably be required to do business in currencies other than sterling. This can expose your business to fluctuations in Foreign Currency Exchange (FX) rates; fluctuations which can in some cases mean the differences between profit and loss. And with so many lenders in the market it can be difficult to know if you are getting a competitive rate.
To help our member’s trade successfully and mitigate risk the Chamber has partnered with Rational FX to offer a Chamber Foreign Exchange Service.
Below you will find information about the service, as well as top tips to mitigating risk and the latest foreign exchange news.
Chamber Foreign Exchange
Help your business to save money and manage foreign exchange risk. Chamber Foreign Exchange, in partnership with Rational FX, offers competitive exchange rates, free online currency accounts, reduced transfer fees and fast, online transactions. Add practical advice and a free foreign exchange health check of your FX requirements to see your business capitalise on currency fluctuations and save money on every transaction.
- Bank-beating exchange rates - typically as much as 4% better than the banks.
- Expert market guidance at the end of a phone - Rational FX's professional currency dealers can guide you through the foreign exchange market.
- Fast online money transfers 24/7 – trade at convenient times with online accounts and live rate information.
- Safeguarded client funds - Rational FX is authorised and regulated by the Financial Conduct Authority to provide payment services and safeguards all client funds in segregated customer accounts.
Foreign Exchange Healthcheck
A Foreign Exchange Healthcheck will assess your:
- Exchange Rates
- Transfer Fees
- Speed of Payments
- Impact of currency movements on your payments
- Credit terms
- Online capabilities
To find out more contact us at [email protected]
Managing Risk – Top Tips
Your business can take some proactive steps towards managing foreign exchange risk, whilst leaving the market analysis and interpretation to the experts.
Your business objectives play an important role in defining an FX policy and it is important to know what degree of risk your company is willing to take and how much your FX exposure could impact on your business objectives.
It is important that your policy complies with and works towards overall strategy and objectives. Once agreed, a policy should be reviewed regularly and be flexible enough to reflect the constantly changing nature of the markets.
Information from varied market sources means a rounded view. Chamber Foreign Exchange Dealers are MSTA (Members of the Society of Technical Analysts) qualified. As experienced market traders they will use their expertise to ensure your company receives the best information and guidance on the markets.
With your policy in place it is time to review the FX tools that you can use to manage your exposure. Spot and Forward contracts and market orders can work individually or together to form a tailored foreign exchange strategy. Depending on your budgeted rate, your requirements and timing, your FX Dealer will be able to suggest a strategy to suit your business.
Timing is key to managing FX risk. To take advantage of positive movements in the markets and to protect against negative fluctuations, you need to be informed at all times. Having access to a personal dealer who will proactively monitor the markets and inform you of relevant movements will enable you to make timely decisions on trades.
While it’s tempting to take a punt on the markets, abandoning your FX policy can increase your risk. Extreme movements in the markets can catch you out. By speaking to your Dealer and adjusting your strategy you can take advantage of positive movements without increasing the risk.
Often, a foreign exchange transaction is just half of the task of managing international invoices. The time taken to process payments each month can add up and detract from other business activities. Your business could benefit from an online system which simplifies payments, automatically checks banking details and stores details for future use.
Tracking payments through the authorisation process is important in maintaining good supplier relationships. Look for payment tracking services, so your suppliers can be emailed automatically when a payment has been sent. In challenging times, key supplier relationships can be hugely important to your business.
Reporting clarity enables your business to ensure it’s adhering to its foreign exchange policy and making the most of movements in the markets. It’s best to choose a system which will have access to sophisticated reporting tools, enabling you to keep track of deals, payments and the progress of your chosen strategy.
A spot contract allows you to ‘fix’ an exchange rate and apply it to an international payment that you want to make within ten working days.
Forward contracts - lock an exchange rate for a future payment
Forward contracts protect against adverse currency movements by locking into favourable exchange rates. You pay a deposit and you can secure the current exchange rate for a payment made at any time within the next 24 months.
A forward contract is useful if you have future commitments for an overseas payment, such as a stock order from an international supplier. You can make sure that the rate doesn't move against you.
If you don't want to make an immediate transfer and you think the market exchange rate for your currency will improve you can easily attempt to achieve a better exchange rate with a market order.
Target a rate that’s not currently available in the market with our expert help
We offer two types of market order:
A limit order
This allows you to set an exchange rate above the current market level at which, once reached, you will automatically buy (or sell) your currency.
Limit orders are useful if you have upcoming payments but are not restricted by tight deadlines and therefore have time to try and achieve a better exchange rate.
A stop loss order
Stop loss orders let you set a minimum exchange rate at which you would be willing to trade.
You set an exchange rate lower than the current market level which, if reached, you will automatically buy (or sell) your currency.
Stop loss and limit orders are often run together. This enables you to aim for a favorable exchange rate, whilst ensuring that, should the markets turn against you, you don’t lose out. At the moment your stop loss or limit order is triggered, the other is immediately cancelled.