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How FX options work
A foreign exchange option is a contract that gives the buyer the right, but not the obligation, to buy one currency and sell another at an agreed rate on a future date. This is known as a vanilla option.
In addition to vanilla options, Smart Currency Business offers a range of structured FX options. These combine two or more option contracts to create more tailored solutions with variable specifications, allowing you to balance protection, flexibility and cost according to your business needs.
Our dedicated team of qualified risk management professionals takes the time to understand your current and potential future exposures, conducting thorough reviews and impact assessments. We then work with you to design solutions that reduce risk while preserving your ability to benefit when the market moves in your favour.
It’s important to note that options will not be the best solution in every instance and may not be the right approach for every business. We’ll always guide you honestly through the pros and cons.
Our Range of Options includes:
- Vanilla options – Vanilla options are an agreement between two parties that gives the buyer of the option the right, but not the obligation, to buy or sell one currency in exchange for another at an agreed exchange rate on a predetermined date
- Collar options – Collar options provide you with a known worst-case rate (known as the protection rate) and a best-case rate (known as the collar rate), which you can use to transact on a given date in the future.
- Participating forward – A participating forward provides a secured protected rate, while still allowing beneficial moves on a predetermined portion of the amount hedged.
- Forward extra – A forward extra provides a secure protection rate, while still allowing beneficial moves up to a pre-determined trigger level.
Case Study
Finding a higher gear
Learn how a coach retailer used options to set up guardrails around its profit margins.
Managing currency exposures is key in volatile markets. Our team were able to implement a range of risk management strategies to mitigate this company’s exposures.
Protecting profit margins
Longer-term management strategies helped protect its budget
Minimum margins
Currency options allowed the business to set minimum margins it wished to uphold
From strength to strength
The company has since upped its traded volumes with Smart Currency Business
What makes us different
SmartHedge PRO
SmartHedge PRO is our currency management platform that makes tracking exposures simpler than ever. Developed and tested to address pressing challenges growing companies face, SmartHedge PRO offers automated solutions that allow business to spend less time pouring over spreadsheets and more time making the decisions that matter.
How we work
Trading with us is simple
Follow our streamlined steps to navigate currency markets effortlessly.
Open an account
Opening an account with Smart Currency Business is simple.
Quick and easy
Complete the enquiry form below, or give us a call.
Guided process
Our team will be happy to guide you through the process.
Frequently Asked Questions
What is a currency option for businesses?
A currency option is a contract giving your business the right, but not the obligation, to exchange currency at a pre-defined rate. It protects against adverse moves while allowing you to benefit if rates improve.
How does a currency option differ from a forward contract?
A forward contract is a binding obligation to trade at a fixed rate. An option gives you the choice. You’re protected from downside moves but can still benefit from upside, whereas a forward locks you into a single rate regardless of where the market moves.
Is there a cost associated with currency options?
Yes, vanilla options require an upfront premium, similar to an insurance premium. However, structured options like collars and forward extras can often be arranged at zero or reduced premium, depending on the structure and market conditions.
What happens if I choose not to exercise my option?
If the market rate is better than your option rate at expiry, you can let the option expire and trade at the prevailing market rate. Your only cost is the premium paid to secure the contract (if applicable).
