Whether you’re importing or exporting to or from foreign territories which use different currencies, knowing how to protect yourself or your business against the fluctuations of currency market fluctuations can be intensely difficult. The issue, of course, is that if you can’t do this, you’re likely to lose your valuable working capital to the perils and risks of exchange rate fluctuations. Here’s the secret to beating them.
Watching Fundamental Factors
If you’re looking to import X number of goods from a nation which operates in euros, the value of the euro is likely to change at any time. This creates a potential problem for you as a business, as it means the amount you agreed to pay for the goods in total has the capacity to change. This makes forecasting difficult, and it could even result in you making a loss if the amount you stand to gain post your sale is less than the amount the price fluctuates by before you import them.
To protect you against making trades at times where the price of the currency you’re trading could become lower than you’d like, you should take into account the fundamental factors which could have a potential effect on your currency. These include geopolitical and socioeconomic factors which might impact on the countries where your currency operates, so looking for potential issues in these territories could give you clues as when to trade or not.
Track the Forex Investment Markets
Tracking the forex markets on a regular basis will provide valuable insight as to how the world’s currencies are behaving. Sites like Investopedia write up daily news which can help you when you’re trying to make predictions about how much the goods you’re purchasing are going to be worth when it comes to the sale.
Fixed Risk: Forward Contracts
Forward contracts are a form of legal support which help you to reduce the risk at hand when trading with overseas currencies. Although checking for fundamental factors which could damage the currency rate you’re trading with is helpful, you can never completely eliminate the risk which is inherent in trading foreign currencies.
Forward contracts offer a way to ensure these risks cannot affect the price you pay for the trade by making sure that the price you’ve negotiated up front is the price you’ll pay, regardless of any currency changes. Signing up for an account with a currencies expert which offers forward contracts will be a positive step in the right direction to ensuring market fluctuations don’t come back to hurt you later.
If you’ve been wondering how successful traders cover themselves against currency market fluctuations when they’re trading cross-border, you should now have a better idea. So when you and your business are looking to make your next trade, don’t let yourself get caught out – use some of the ideas above and you should be able to successfully navigate currency fluctuations.