It is common practice for businesses who trade internationally to try and "time the currency markets". They wait and purchase foreign currency in large amounts when exchange rates “look attractive” and then draw on the purchased balance to pay currency invoices in the following weeks or months.
This is all very convenient for FX specialist firms (who make larger fees on a larger amount). They sometimes let clients do this even when it introduces new financial risks instead of removing them. Having seen many examples of how this can go wrong, we always insist on discussing the pros and cons with our clients.
On the positive side, the strategy works great if you do manage to time the market well. Unfortunately, few SMEs are equipped for this. It is also one of the simplest strategies to plan for future currency needs - until HedgeFlows alternative has become available!
However, imagine a situation where a company buys a large amount of foreign currency at what looks at the time like an attractive level, which it expects to use in the coming weeks or months. If the foreign currency rate becomes even better (cheaper) after such a purchase, the company would miss an opportunity to participate in such savings. In a way, trying to “time the market” can muddle the process of currency management, lead to actual financial losses and cloud underlying business profitability.
A better alternative to trying to “time the currency markets” is to prebook guaranteed exchange rates for invoices/expenses that you are already contractually committed to. In fact, larger businesses with experience in trading in multiple currencies usually have the rule to have 70-80% of their payables and receivables in foreign currencies risk-managed. You can do this without having to spend any Pound Sterling until you need to actually pay the invoices. This way you know upfront how much your future invoices in any currency will cost you.
HedgeFlows clients can seamlessly integrate with popular accounting systems to make this process very simple and automated for finance teams of any size or for more advanced users. With a simple and easy-to-use interface, our clients can prebook exchange in seconds, evaluate financial risks from foreign payables and receivables, and process their international payments with one global business account.
