04 Jul BCR Global Forex Trading How It Works
FX trading is the oil which keeps the machine of international trade and finance moving. Prudent companies and individuals often need to hedge risk, because large currency movements can affect their profits and even threaten their business. They do this by arranging their currency purchases and sales to the best advantage of the business. Central banks and governments also have a large presence in the FX market and traders, who earn their living from trading currencies, add huge amounts of liquidity to these markets.
Different types of foreign exchange trades have developed in response to the needs of individuals and businesses, and each of these have different attributes and benefits:
With spot deals, you contact your foreign exchange broker and ask for a quote to buy or sell your required currency. The deal can be as simple as agreeing a price and paying for the currency immediately. However, some companies and traders buy one currency and sell another at the same time. For example, they might want to buy Australian Dollars (AUD) and sell Japanese Yen (JPY).
Fixed Forward Deals
These deals are useful for companies who want to minimize their exposure to currency movements and fix the rate for budgetary reasons. The contract allows them to fix a price for a currency, and buy or sell a given amount of the currency at that price on a fixed date in the future. BCR Global offers contracts with a delivery date of up to two years, and this can provide useful medium-term coverage for companies and traders alike.
Window Forward Deals
If the company or trader doesn’t want to be tied to a specific date, but does want to secure the rate, then a “window forward” is the obvious choice. This allows one to fix the price of the currency exchange, but instead of saying that they will carry out the trade on a fixed date, the trade can be set between certain periodic parameters. This has obvious advantages in its flexibility.
A market order allows the company or trader to choose a rate that is better than the current obtainable spot rate. BCR Global can place an automated order in the market that will execute the currency transaction when their desired rate can be achieved. This will be filled at any time and will be locked in even if the rate is only achievable for one second. This is particularly useful if a company has budgeted for their annual currency exposure at a certain rate but find that the actual rate has fallen lower. A market order can be placed at their annual budgeted rate and executed as soon as the rate is achievable.