Effective FX risk management. The big corporations have long been perfecting it, and yet few smaller tech companies do any sort of FX risk management, even though they are suffering the most from it!

Why? Because tech companies have more obstacles in the way.

Fortunately for you, one of the greatest hurdles is simply knowing about the problem, and if you’ve clicked on this article, chances are you recognise FX risk as something that needs to be dealt with.

So, what can you do about it? There are some tools and techniques available to tech businesses that allow them to take control of FX risks themselves. Here are 3 practical steps worth considering to kickstart your FX strategy:

1. Assess risk exposure 

As a small or mid-sized company decision-maker, is it worth your while to expose your firm to foreign exchange risk? That’s a fair question to ask. If you’re only making smaller payments overseas, the need for a substantial FX risk program is relatively low. Yet if the level of foreign exchange transaction activity can impact your bottom line, you should consider a strong risk and volatility FX campaign. Our volatility simulator might be able to help you answer that question - you can assess potential risk based on the business’s revenue and expenses. This article could also help. 

Or get in touch to look at our Currency at Risk (CAR) estimator with someone on the team.

2. Set your sights

a) Low risk? Get the best rates

So you’ve decided that your currency risk exposure is low? In that case, a substantial FX program may not be necessary, but you still want to make sure you’re getting the best exchange rates possible for your business’s overseas transactions. With an abundance of options for currency conversion – banks, online platforms, brokers, fintechs – it can feel like trying to boil the ocean to choose the right one. To cut through the noise, we’ve got articles that can help you decide a whole lot faster.

b) High risk? Manage it

So you’ve decided that your currency risk exposure is significant? Well, it might be wise to employ a hedging strategy to minimise this risk sooner rather than later. Hedging can seem daunting and complicated because there is a lot of misleading information out there, but in reality, it is as complicated as you make it. To keep it simple, start by figuring out what your FX risks are, and the resources you have to dedicate to FX management. Pinpoint and prioritise risks that can be dealt with through hedging. Then you can move on to step 3.

3. Get aggressive with hedging

You’ve understood your risks and internal resources, and want to hedge. But what hedging strategies are out there? Let’s very briefly cover the bases. 

Internal hedging is doing it in-house, using methods like risk sharing, price variation, matching, or simply sticking solely with the domestic currency. Each of these come with their own risks and challenges.

External hedging is a very popular option, seeking external help from a third party. Banks, forex brokers, and specialised tech firms are the options here. They allow you to hedge via financial instruments like forward contracts, options, and futures can be extremely effective, albeit complicated. Many treasurers look to automate these hedging strategies for the easiest management. 

There’s a lot to learn about hedging, so take your time choosing the best strategy – you should know what you’re doing and why you’re doing it. Once you’ve implemented your hedging strategy, be sure to keep on top of it, stay educated, and make adjustments when necessary. 

That’s the 3 step plan, good luck!

Educational articles and learning resources like this can help clear up confusion and misconceptions about the foreign currency exchange. At Bound, we deliver tons of relevant information on all things FX, check out our blog if you want to learn more.

We also provide straightforward tools for businesses to reduce their exposure to currency risks - feel free to contact us if you think this suits your business.