Are You Prepared For Big Swings In The Currency Market

Recent events such as Brexit, the US trade war with China and now the potential of a trade war with the EU (after the US imposed tariffs of $7.5 billion on imports of European goods), may leave you thinking whether your business is prepared for big swings in the value of a currency.

If you are then the following questions will help you spot any holes in your current risk management strategy.


Greg Smith
Greg has been helping businesses succeed in international markets for many more years than he would admit. A Fellow of the Chartered Institute for Securities & Investments, he has improved profits and reduced risk for many businesses from large international to small family firms operating in a wide variety of industry sectors. Known for his directness and strategic approach, Greg’s favourite question is, “How does this affect me and my business?”

How is my firm positioned for large currency moves?

First it is important to consider how your company is hedged. Then, if you don’t know how appropriate your hedging is for the volatility in the currency markets you operate then you should do something about it right away.

For example, most businesses hedge cash flow exposures, some of them out to three or more years, but most hedge for shorter durations while also under hedging on some exposures.

Furthermore, not all businesses consider hedging their Balance Sheet exposure. If, for example, you have significant assets valued or held in a foreign currency then you could be at significant risk when there are big swings in the value of that currency.

It is important that you consider all eventualities when hedging your exposure. If you don’t know what you are risking by not hedging and the implications of not hedging then it is imperative that you work it out or employ the services of someone who can.

Do we hedge exposures in emerging currencies?

Something else to consider when you are evaluating your readiness for a big swing in the market is whether you hedge your exposure in emerging market currencies.

Most firms fail to hedge their exposure in emerging market currencies as hedges can be costly compared to major currencies and also may come with currency controls or you may not be able to hedge them directly.

Emerging market currencies are significantly more volatile than major currencies therefore it is essential that you evaluate what measures you can take to reduce your exposure to the risk that comes with emerging market currencies.

Is it too late to hedge?

Most businesses have an aversion to locking in a loss if they haven’t secured a hedge before a big swing in an exchange rate.

Depending on the circumstances in this kind of situation, you are far better to hedge at a worse rate than expose yourself to further downside. The upside is that any hedge that you secure when the market is low can be offset with future currency moves. For more information on what to do in this situation, check out our article on the Big Mistakes Companies make when managing their FX Risk.

Are my firm’s risk management systems and staff ready for a big swing in currencies?

While it is important to consider your current position and future hedges when it comes to handling a big swing in the value of a currency. It is also important to evaluate the readiness of your team and the systems and partners you use to help you manage such situations.

If you find that you are still incurring significant losses as a result of big swings then it is time to evaluate whether your team, systems or FX provider are capable enough to protect you from financial loss.

What If I Do Nothing?

The big question that every business has to ask itself in managing big swings in the market is what happens if I do nothing.

Unfortunately, some businesses we speak to take a “we’ve never hedged before and it has always worked out approach” or when they do hedge the contracts are out of the money when they make the exchange therefore they like to move with the market.

You only have to look at recent big economic and political events to imagine the effect that it can have on your business. This is why it is so important to consider what would happen if I did nothing.

The Brexit referendum result, for example, wiped 20% off of the value of the UK pound against the Euro overnight, and it continues to create havoc for many businesses that trade the currency pair.

If the effect of a 20% change in price would be adverse for your business then it is high time you looked into the kind of risk you face from big swings in the market.

While many currency providers aren’t positioned to help you quantify and manage the risk you face from big swings in the currency markets (as well as everyday trading), Hawk FX has the expertise and tools to help you plan accordingly as well as first class trading platforms to help you execute your strategy.

If you would like to find out more about how we can help you avoid big swings in the market as well as protect you from the risks of everyday trading, call me on +44 (0)330 380 30 30 or email

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