• Introduction to World First’s Hedging Service
• The Participating Forward
• The Protection Option
• The Risk Reversal

Introduction to World First’s Hedging Service

World First Markets Ltd has been set up to give private clients more flexibility when they need to hedge their foreign currency exposures. World First Markets Ltd is authorised by the Financial Services Authority (FSA) to offer its clients foreign exchange options for the purpose of hedging foreign exchange exposures.

If you are buying or selling a property abroad, you may be exposed to significant risk due to constant fluctuations in exchange rates. Until recently, you only had two ways to manage your foreign exchange risk:

1) The first has been to wait until you need to make a foreign exchange transaction or payment and take the prevailing (spot) rate. As an overseas house buyer, you are exposed to a falling exchange rate but you are able to benefit from a rising exchange rate. And the opposite applies for an overseas house seller. This is an 'un-hedged' position.

2) The second has been to fix the exchange rate with forward contract. This enables you to fix the exact cost of, or income from, the house you were buying or selling and protects you from adverse exchange rate moves. However, you are unable to benefit from any subsequent improvement in the rate.

There is now a third alternative: hedging strategies that are tailored to fit your exposure, currency forecast and risk level, that enable you to protect yourself from adverse rate movements and benefit from favourable rate movements. Although these have historically been available to large corporate clients through their banks, we are the first currency broker to offer these to private clients and companies in the UK.

Hedging strategies - how do they work?

There are a number of different strategies but generally they work in one of two ways:

1) They enable you to guarantee a worst case rate. This worst case rate will always be inferior to the actual forward contract rate. The difference between these two rates effectively 'pays' for you to be able to benefit from a favourable move in the rate which can be unlimited.

2) They provide protection by guaranteeing a worst case rate which can be higher or lower than the forward contract rate for which you pay an upfront cost (premium). This is similar to an insurance policy.

What products are available?

Although there are ten strategies that are frequently employed, we have chosen three of the most widely used to describe here:

1. The participating forward

2. The protection option

3. The Risk Reversal

All clients will be categorised by us as 'retail clients' which affords our clients the greatest level of protection under the FSA regulations. We will also offer an 'advisory' service to all our clients unless a client specifies that they want to receive an 'execution only' service from World First.

World First Markets Limited is authorised and regulated by the Financial Services Authority. Our Firm Reference Number is 477561