There are different types of FX exposure a company may face: transactional and operational. For businesses that trade overseas in different currencies, being able to mitigate the risk of currency volatility is important.
A spot FX trade is a straightforward foreign currency exchange. Using real-time exchange rates, we offer same-day, next day and spot foreign exchange transaction services in over 60 different currencies. We access multiple pools of liquidity to secure sharper pricing, enabling our clients to benefit from seamless execution and fast, secure settlement.
A forward contract is a customised over-the-counter (OTC) contract between two parties to buy or sell a currency at a specified price on a future date. It can be an effective solution to mitigate currency risk, providing certainty and flexibility with business costs such as global payroll, overseas invoices and intercompany transfers. A forward contract:
- Fixes the value of future international payments and receipts.
- Protects profit margins, cash flow and your bottom line from currency fluctuations.
Note: Foreign exchange OTC derivative products offered by MonFX, will only be available to accredited investors and institutional investors as defined under the Securities and Futures Act 2001. Such investors have financial and other resources to seek their own professional advice to understand the risks. For example, trading in derivative products may put capital at risk and may require further margin payments to maintain positions.
A non-deliverable forward (NDF) is a type of contract that allows companies to offset the financial impact of currency movements. An NDF is most commonly used in markets where local currency controls restrict the availability of standard forward contracts, or where physical exchanges of currency are not required.
An NDF is a cash-settled forward contract. Instead of exchanging notional currency amounts on the value date, the trade is closed out. This generates either a positive or a negative cash flow that is usually directly opposite to the company’s underlying exposure.
The benefits of an NDF are that companies can hedge a currency exposure to a restricted currency that would not be possible using traditional methods.
A market order is an order to buy/sell a specified amount of currency at a predetermined rate of exchange not currently achievable. This allows you to get on with your day job and take advantage of market moves without having to keep track of the markets all day long. It also allows you to take advantage of any overnight volatility or illiquidity that you may not necessarily see in normal trading hours. MonFX offers two main types of market orders – limit orders and stop loss orders.
Limit order → Typically an order at a target rate better than where the market is currently trading.
A stop loss order → Typically an order to instruct a trade at a predetermined “worst case scenario” rate, to prevent further losses if the markets start to move against you.
As part of our corporate foreign exchange offering, we can offer flexible margin to clients looking to hedge their FX exposures. Subject to creditworthiness, the margin agreement may lower or remove the requirement to place initial and/or variation margin with us that would otherwise be required against any forward trades.