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Protect your International Currency Risk

Categories: AUD, CAD, EUR, FAQS, GBP, News, NZD, USD

Protect your International Currency Transfer from Events like Brexit, Grexit and ‘Black Mondays’ with Risk Management Strategies

Just as financial markets began to recover from months of ‘Grexit’ fears and investors started focusing on rate hike speculation again, there was another asset-shaking shift in the form of ‘Black Monday’.

The state of China’s economy and the slowing pace of growth in the nation has been a growing cause of concern, but a six-year low Manufacturing PMI proved the catalyst for a dramatic tumble in Chinese stocks. The over 8% slide in the Shanghai Stock Exchange triggered losses in European and US stock markets so extensive that traders were reminded forcibly of the early stages of the global financial crisis.

The stock market chaos led to commodity prices plummeting and extreme exchange rate shifts. The unwinding of carry trades saw the Euro jump across the board (pushing the GBP/EUR) exchange rate to an over three month low) and left commodity currencies like the Australian, New Zealand and Canadian Dollars tumbling.

The Pound rallied to over 2.22 against the Australian Dollar (up from a previous rate of 2.13) and struck an eight-year high against the Canadian Dollar.

‘Black Monday’ may have been an extreme case of market volatility, but it does highlight how dramatically exchange rates can fluctuate. If you’ve got sporadic or regular foreign currency transfers to manage, sudden shifts like this can make a big difference to how much money you receive. While some developments are impossible to predict, there are ways of keeping an eye on the latest market movements and steps you can take to safeguard your transactions.

One of the easiest ways of tracking exchange rate trends is to take advantage of the free market analysis offered by some leading currency brokers. After opening a free, no-obligation account you’ll be sent regular in-depth updates relating to the pairings you’re interested in. By staying on top of exchange rate trends you’ll be in a better position to take advantage of a positive movement or defend your transaction from a potentially negative one.

Another area where currency brokers can help is with the deployment of risk management strategies and tools. Brokers are able to offer international money transfer services which many banks don’t provide, like forward contracts and order types. The way you chose to manage your transfer may depend on how much you’re moving and where you’re sending the money to, but a currency broker will be able to assess your situation and ensure you come up with the best solution.

Below are the most popular risk management tools offered by currency brokers;

Forward Contract

By allowing you to lock in a favourable rate up to two years in advance of trading, a forward contract gives you the option to budget more effectively, take advantage of a competitive exchange rate and safeguard your transaction from a potential slump in the currency market. With some brokers you don’t even need to have all your funds available in order to set up a forward contract and will just be asked to set down a 10% deposit.

Order Types

Limit Order

With this transfer option you can target a specific exchange rate better than the current market rate. After agreeing your desired rate with a currency broker, their dealers will monitor the market 24/7 and automatically buy the currency when the target is hit.

Stop Loss Order

Stop loss orders let you set a minimum/maximum rate at which to purchase your currency. Should the market rise or fall to the predetermined rate, the currency trade will be conducted automatically. With this order type in place you know your transfer is protected from large exchange rate shifts.

It’s also possible to use limit and stop loss orders in combination, so you can guarantee your trade is going to be conducted within a certain range while defending it against currency risk.

If you’ve got a foreign currency exchange requirement coming up and want to employ risk management strategies to keep your funds secure, you may want to get in touch with a currency broker and discuss the options available to you.

TorFX Author: TorFX

"Our company's mission is to provide outstanding exchange rates, expert guidance and a simple, friendly service that people will want to recommend to others." – Jon Beddell (CEO). Contact TorFX for an FX Quote - UK & Europe - Australia & NZ.

You can get in touch with TorFx via email here or via the contact page.
Please note that the opinions of our authors are their own and do not reflect the opinion of BestExchangeRates and should not be taken as a reference to buy or sell any financial product. Full Disclaimer

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