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The latest articles and blog posts from the FairFX team

Disclaimer: this material is not investment research as defined by the Financial Conduct Authority

Spot Transfers

What is a Spot Transfer?

Spot transfers (also called spot contracts) allow you to lock in a rate immediately or ‘on the spot’ via telephone or email. The currency is bought or sold for delivery within two days of the deal being agreed.

Great for…
• Locking in a rate for immediate use
• Usually the fastest way of booking a currency transfer
• No deposit usually required

What you need to know…
• Full payment is required before the transaction is processed

Example: A small photo frame importer took advantage of a temporary increase in GBP/JPY strength and managed to obtain more merchandise for the same price. Consider next day and same day settlements for time sensitive transfers.

Wednesday 24 June 2015, 05:22pm

Limit Orders

What is a Limit Order?

Limit orders allow you to agree a ‘target’ exchange rate that will automatically buy/sell the agreed amount if the rate is achievable with the agreed timeframe.

Great for…
• Allows you to focus on your core business while an automated trigger tracks rate movements 24/7
• Gives you flexibility when it comes to finding the best rate

What you need to know…
• Rates cannot be guaranteed due to unpredictable market behaviour

Example: An IT start-up was looking to book in a transfer in the midst of a large office and IT migration. A Limit Order was the best solution as the market had not reached their desired rate yet and they’d lose phone and online connection during the move, so their dealer placed a limit order so the company could concentrate on establishing themselves at their new office. The limit order hit two days after being booked and the company achieved their target rate whilst having no phones or emails available. Limit orders allow companies to still achieve great exchange rates whilst allowing them to get on with running their business.

Wednesday 24 June 2015, 05:18pm

Forward Contracts

What is a Forward Contract?

A forward contract allows you to lock in a current rate for transactions up to one year in advance and draw from the agreed amount to make transactions throughout the year at the set rate.

There are two main types of Forward Contract:
1) Fixed Forward Contract: A fixed forward defines a single future date to transact the full amount of currency bought or sold
2) Open Forward Contract: An open forward allows you to ‘draw down’ any increment/s of the full amount of funds bought or sold up until the expiry date of the booking

Great for…
• Locking in an existing rate to be used at a later date hedges any risk of market downturn, avoiding potential losses that can occur within the time frame of the forward contract.
• An Open Forward Contract allows you more flexibility and control with your money through incremental draw downs.
• Mitigating risk

What you need to know…
• Once the forward is agreed, the rate does not change even if the market moves in your favour
• A 10% deposit is usually required for all forward contracts

Example: A pet product importer was looking to minimise any risk when paying for goods from European suppliers. Knowing they had a budget of £80,000.00 they wanted to make sure they knew exactly how many Euros they had to purchase products so as not to go into debt and booked a forward contract for £80,000.00 at 1.21 giving them €96,800.00. They could draw down from this rate for six more months. Within those six months the average rate fell to 1.16, meaning the company saved £4,000.

Wednesday 24 June 2015, 05:13pm