Currency hedging strategies for businesses

Buy or sell a fixed amount of currency with a forward contract. WorldFirst will offer you a guaranteed rate at which you can transfer during the tenure of your contract.

A forward exchange contract with WorldFirst can be entered to facilitate payments for identifiable goods, services or direct investment (making a capital investment in an enterprise to obtain a lasting interest in it).

live rates graph

How do Forward Contracts work at WorldFirst?

Forward Contracts help protect SMEs against currency fluctuations without having to buy currency upfront on the spot market. The forward price is always based on the current spot price. The spot price is the current market price at which a currency pair is bought or sold for immediate payment and delivery. We offer a fully transparent pricing model, which sets the forward contracts being offered apart in the marketplace.

What is a forward contract?

A forward contract is a hedging product that enables businesses to protect themselves from currency exposure and market volatility.

They work by fixing the rate of exchange over a set period on a pre-determined volume of currency and are used to help protect buyers from fluctuations in currency price.

There are different forward strategies which can be executed depending on your individual business needs.

Why hedge using a forward contract?

Locking in an exchange rate with a forward contract allows your business to protect its profit margins and internal budgets, whilst remaining competitive.

You will stay in control and create predictability of your cashflow. Given that currencies are traded around the clock, 24-hours a day, it makes sense that exchange rates are in constant flux. With this in mind, it's easy to see how forward contracts enable forward-planning.

What can happen if you don’t hedge?

- Reduce predictability of cashflow and put your internal budget rates at risk

- Business could suffer potential losses to profit margins because of adverse currency fluctuations

- You may have to raise prices in order to protect profit margins following a significant change in the rate, and therefore become non-competitive

Forward contracts – the benefits:

✔ A rate can be fixed, providing certainty over your profit margins. The exchange rate would be locked in for the entire length of the forward contract, providing you with a guaranteed rate of exchange.

✔ If the market rate moves against you, you will not be negatively impacted as you have locked in an exchange rate.

✔ Help with future cash flow planning and potentially mitigating currency risk

Risk analysis | Things to consider with Forward Contracts

Risk management:

It is important to consider your risk appetite and evaluate your budget rate when pre-booking foreign currency. Whilst a forward contract can help you protect your budget rate; it may also be worthwhile exploring other strategies if you are unsure of your requirements.

Missed opportunities:

If a currency moves in your favour, you won't be able to capitalise on that opportunity using the pre-booked forward contract, and instead would need to book a spot contract to take advantage of the market movement.

Credit Facilities:

Please reach out to your relationship manager who can look to see whether you are eligible for a credit facility to help cover the initial deposit requirement associated with forward contracts.

Currency hedging strategies for SMEs

Why are Forward contracts useful for your business?

Below are some examples where a forward contract might be useful for a business:

  • To hedge (lock in a rate) a rate to cover an invoice that is dated in the future

  • To hedge a rate to cover a percentage of a company’s forecast currency requirements for future supplier payments

  • To hedge a rate for project work that is paid in stages for up to 24-months

  • To protect forecast exporting revenue from currency volatility

  • When profit margins are tight and the ability to adjust the product and pricing is not an option

  • When a business has already published their prices on a website/brochure, and cannot re-price their product if the currency moves negatively against the business eating into their profit margin

How to book a forward contract with WorldFirst

Give us a call on 1800 744 777 and one of our expert relationship managers will explain the variety of hedging strategies available.

Are you a newly trading customer?

Your relationship manager will clearly cover the below terms to ensure you are comfortable with the conditions of the forward.

These terms include:

  • The currencies involved

  • Rate of the contract

  • Tenure (length) of the contract

  • Determining whether you require a fixed, flexible, or window forward

  • Explaining deposit/initial margin requirements, in case a credit facility is appropriate to help cover initial margin requirements

  • Understanding if you will be using this (forward bought) currency in relation to the sale or purchase of goods or services, or for direct investment

Get an account with WorldFirst

At WorldFirst, we have two different accounts depending on what features suit your business needs. Both accounts are free to open and maintain and come with a dedicated relationship manager that will provide you with any support and assistance you may need.

For more information on what account you need for your business requirements, visit our business page to find out more.

Take action now

If you need to make an international payment, look no further. Join the 280,000+ clients around the world who are benefitting from our services. Or feel free to give us a shout - a real person will answer your call, within 3 rings. Go on, give us a try. We think you'll like us.

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+61 2 8298 4999

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World First Pty Ltd is a designated remittance provider with the Australian Transaction Reports and Analysis Centre (AUSTRAC), remittance sector registration number: IND100192523-001. Regulated by the Australian Securities and Investments Commission (ASIC), Australian Financial Services Licence (AFSL) number 331945. Australian Company Number (ACN) 132 368 971. Member of the Australian Financial Complaints Authority, membership number 13405.

If you’re considering making a foreign exchange transaction, or you’re a new or existing customer looking for more information, it’s important your read our PDS available online.

*Pricing from 0.50% or less applies to 25 of our major and most popular currencies.

Price match applies if it doesn't result in a loss for us, we'll match it.

Many banks and payment providers frequently claim to offer “fair” and “transparent” pricing, yet the reality is something very different. Our new pricing model aims to provide both new and existing customers with fair, simple and transparent pricing, using 3 clear FX margin bands margins (0.5%, 0.25% and 0.15%) with no hidden fees. With transparent pricing our customers and potential customers can clearly compare WorldFirst to our competitors.

How do we collect this data?

WorldFirst obtain price comparisons from other international payment providers’ websites, at specific dates and time using a third-party supplier. The comparison table shows the margin applied by the competition to transfer amounts of AUD 1,000, 10,000 and 50,000 into EUR, USD and GBP.

1. The Margin

The margin is the percentage difference between the exchange rate we buy our currency at and the rate at which we sell it to our customers. We at WorldFirst take a smaller margin than most banks and other currency companies, and pass this benefit on to our clients, making all our transfers simpler and more transparent.

2. The cost of international payments

For each pricing band we look at the FX margin applied. This is what we use to compare against our fixed bands of (0.50%, 0.25% and 0.15%).

When researching and making comparisons it is important to know if any additional transaction charges will be applied such as payment fees or account management fees. For most customers WorldFirst does not apply additional fees to make payments or to maintain an account with us. If any fees are applicable these will be made clear to you in advance.

3. How do we work out a comparison up to 8 times cheaper than the banks

When we collect data from providers, we do it using different “amounts” such as $1,000, $10,000 and $50,000 where possible. For our data we have focused on the top currency pairs in Australia: GBP to USD/EUR/AUD.

Because the WorldFirst fixed pricing tiers are based on annual volumes transacted by our customers, we have averaged out the margins applied by competitors to transactions of differing amounts in those tiers to calculate an average margin. We take our margins and divide by the average margins of the big 4 banks. This is important, because providers tend to offer better exchange rates and smaller transfer fees when a customer is moving larger sums of money.

What all this means for you

Other money-transfer providers may have variable margins across different currencies, whilst WorldFirst now has fixed margins, agreed ahead of time, making it easier to compare.