Business News

The importance of hedging yourself

We have recently been working with World First to provide assistance to clients trading overseas in order to reduce their foreign exchange risk and increase profitability. World First is the UK’s fastest growing foreign exchange broker, offering private individuals and companies the ability to achieve significantly better foreign currency exchange rates and exceptional service.

Based in London, World First has worked with over 20,000 private clients and 4,700 companies to date. World First’s foreign exchange transaction volume was over £1 billion last year (2009).

Jeremy Cook, Chief Economist, comments:

“Hedging yourself is more important than dealing at the best rate on the day. It sounds like a controversial statement but having advised clients on hedging throughout the strangest market moves in the best part of 80 years, I can make that assessment.

“Leaving yourself unhedged is something you shouldn’t do and simply put, it is highly risky and ill-advised. A bad week for the pound can see it lose 4% to 6% at the moment and can easily turn a profitable position or contract into a loss maker.

“We would recommend clients protect themselves via a forward contract or a simple derivative structure but of course these tools can be customised depending on the clients’ needs and therefore an ‘off-the-shelf’ solution may not always be appropriate.

“Most of you will have heard of, and used, a basic forward contract to protect yourself. The forward will allow you to protect a level that nobody can take away from you. It doesn’t, however, let you benefit from any upside and we’ll have to look at options structures for that. The options universe is vast and to list all the ways that you can protect yourself is long, but in these high volatility markets they are invaluable.

“As a business, budgetary decisions need to be made and, where budgets allow, improvements and alterations can be made to a current strategy (assuming you have one at all!). There is no need for anybody to take a risk on a budget and regardless of your risk appetite, there will be something that fits your scenario.”

If you would like further details, please contact your contact partner at TWP.