When you have to deal with transferring currency, there is always a risk attached due to the huge fluctuations on the global market. This currency risk could lead to a significant loss on a trade, but fortunately, there are ways to mitigate this risk and ensure that you are getting the most for your money. Whether you are preparing for a trip abroad, paying a foreign client or trading in the Forex market; try these methods to reduce currency risk.
Consider Influential Factors
There are many factors which can impact the strength of a currency, with a few of these being relatively predictable. It is worth looking at the current political and economic factors of the country that you are dealing with, as events such as an upcoming election could impact the value of a currency. Use this information to determine when the best time to make a transfer is. As the Forex market is the biggest in the world, it means that there are endless resources online which will help you to make intelligent decisions.
Stop Loss and Limit Orders
If trading on the Forex market, it is possible to incur significant losses very quickly due to the high leverage (which is a double-edged sword). In order to reduce risk, stop loss and limit orders can be used. A limit order enables you to set the maximum and minimum exchange rate for buying/selling, whilst a stop loss allows an individual to select a price for buying/selling a particular currency.
Forward Contract
For businesses that need to make a foreign exchange at a future date, they can mitigate risk through a forward contract. This allows you to lock in a favourable exchange rate, which will then be used in the future when the transaction is made. Whilst this is beneficial if you predict the exchange rate to fall, it can also work against you if the rate improves as you have a locked in rate.
Use a Currency Broker
Instead of going to your bank to handle the transfer, it is much wiser to use a currency broker. Reputable brokers, such as Hantec Markets, typically offer much more favourable exchange rates and often there are no fees involved. Additionally, many of these specialists have fantastic resources, tutorials and tools to help you trade at the right time.
Extreme swings in the exchange rate can make dealing with foreign currency a huge risk whether you are an individual or business. Fortunately, the above methods can mitigate risk and ensure that you are making intelligent trades at the right time.
