An Introduction to FX Risk Management

Why should you Consider FX Risk Management?

In a world in which foreign currency exchange rates are in a constant state of flux, companies with international dealings run the risk of losing substantial sums of money if they fail to hedge their exposure to these shifts. Changes in exchange rates can make the bills that they need to pay to overseas suppliers greater than anticipated, and even small increases in currency rates can cause substantial international payments to rise considerably.

This can, in turn, make it harder for businesses to accurately budget their expenses and plan for future success. Our currency options have allowed business people to reduce their downside risk and thereby make it easier for them to focus on what matters most: making their business thrive and grow.

How can you Manage your Foreign Exchange Exposure?

Foreign exchange options are incredibly powerful tools that can be used to manage your business’s currency exchange strategy. The instrument that you choose will depend largely on your circumstances and needs: whilst some of these options are designed to mitigate your exchange-rate risk, there are others that are better-suited to helping you to secure a better deal than you would have received if you’d instead used market rates.

We offer a variety of FX options, ranging from the vanilla option to more advanced instruments, such as zero-cost collars. Currency options are often the best choice for those who wish to exchange large amounts of money – and this is especially true when the currencies in question are subject to volatile movements, there is great political uncertainty and/or if trading conditions are unpredictable.

There are a number of foreign exchange options we offer that can help you and your business manage its foreign exchange rate risk.

Why choose Moneycorp Bank for your FX Risk Management Solutions?

All in one place for transparency

All in one place for transparency

Your FX and Payments available to you with one login. Your online access will allow full visibility to improve your ways of working, to better manage your cashflow.

Don't get caught out on fees

Don't get caught out on fees

Suppliers sending USD to your GBP account? Remove the risk of unplanned conversions and expensive charges. Rely on our competitive transparent pricing.

Security never compromised

Security never compromised

Take assurance from our client segregated accounts (we don’t use your funds for anything other than your transaction).

Seeking your new opportunities

Seeking your new opportunities

Streamline your supply chain, start new relationships with worldwide suppliers, and take on the challenges to succeed in our new world. We are ready when you are.

Types of FX options

Vanilla options

Vanilla options

Vanilla options confer upon the holder the right, but not an obligation, to exchange one currency for another at a specified rate (known as the ‘strike rate’) on a specified date (the ‘expiry date’). This option is best if you wish to protect your business from adverse movements or put your business in a position to benefit from favourable movements in the currency markets.

The beauty of vanilla options is that they allow holders to buy or sell a currency for a limited time, and at a predetermined price. This allows them to benefit from movements in the price of currencies – whether those are upwards or downwards movements – without having an obligation to actually buy or sell that currency.


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Zero-cost options

Zero-cost options

Much like vanilla options, zero-cost options (also known as a zero-cost hedge, or a risk reversal strategy) can offer protection against exchange rate fluctuations; in order for you to not have to pay an up-front premium, however, some of the benefits of vanilla options are sacrificed. You may be obliged to trade at the point of expiry and the gains that you can will be capped past a certain point. We offer several premium-free FX options at Moneycorp Bank.

Zero-cost options allow currency traders to be hedged at a pre-defined rate, whilst also benefiting from favourable moves in the market to a certain cap level. They are ideal for businesses looking to safeguard against unfavourable fluctuations in currency exchange rates.

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Types of zero-cost options

Participating Forward Contracts

Participating forwards are very similar to forward contracts, but with one key difference: they allow you to benefit from favourable moves in the currency markets that occur between the date of the contract and the date of the transaction.

Participating forwards require you to agree on a worst-case forex rate (the 'strike rate'). This means that you can exchange at the protected rate should the currency pair drift in an unfavourable direction; you can also participate in favourable movements for a percentage of the structure (this is usually 50%, but it can be tailored to your requirements).

Collar options

Collar options are hedging strategies that you can use to manage your exchange rate risk in the currency markets by limiting your exposure to fluctuations that occur within a certain range.

You receive protection from collar options if the rate of exchange is lower than the worst-case rate stipulated in your contract. If, on the other hand, the rate of exchange is better than the best-case rate that was specified, you have an obligation to deal at the best-case rate. If the rate of exchange falls between the two levels, you have the option of trading at the prevailing rate.

& more than 20 other premium-free options

Call +350 22255600 to find out more about how other zero-cost FX options, such as knock-out options and extendable FX options, can help your business manage its foreign exchange rate risk.

Please be advised that our Options products may not be appropriate for all prospective clients.

Meet the Team

Tom Barbour

Head of FX Options Trading

Luke Quinton

FX Options Dealer

Get in touch to find out more about the range of FX options we offer