I'm hoping there may be some traders on this forum, or people who understand the US currency market better than I do..
I run a UK based company which trades globally, we invoice in £, $ and EURO's and are currently sitting on a currency surplus of US$500k with further US$500k bank funding availability.

We have a rolling loan account from an investor, with a current balance or around £1 Million, and expect to be required to pay back half of this in the next 4-6 weeks.

I have been looking to find the most efficient way of turning these $US into £Sterling, but we have no experience of currency trading. We have been dealing with a currency broker who has given some advice, but i'm aware they have their own agenda, so i'm reluctant to take advice from them at face value and feel we need to take our own view.

Is there anyone with experience or knowledge of currency markets who can advise whether we should be changing our $ into £ immediately? Or if we would be better to sit on them and wait for the exchange rate to improve in our favor? Or some mixture of these options.
At this stage we have agreed to exchange $180k at current value and wait to see how the $ value changes over the next few days.

I'm aware this is not a black and white area and the people who know the best strategy will not necessarily want to share in on a public forum, but would be grateful if anyone can recommend things to look out for or to point me in the right direction of any relevant literature i should be reading or possibly relevant threads here on 2p2?

Thanks very much

Are currency movements predictable enough for your question to matter?

If yes: you're a future billionaire, so who gives a **** about this little bit of money?
If no: just transfer it whenever you want.

You're welcome.

In terms of keeping the client satisfied, if he has a choice, just ask what he prefers. If he doesn't have a choice, just make up some bull**** retroactive reason why you did what you did.

It's about minimising the amount we lose short term due to currency fluctuation.
We bought these $ for x and now we need to sell them for y, ideally x & y would be the same number or y would be bigger than x, but we have accepted we will probably make a loss and want to find the best way of restricting this.

I get what you're trying to do.

If you can predict the market enough for your question to matter, you are a billionaire in the makng. If you can't just do it whenever you feel like it. GL

TS is right. If you can find some way to minimize this loss then you can leverage that ability to make unlimited amounts of money. This is a fool's errand sir

Regarding fluctuations in currency, who really knows. The price it is right now is the price it's worth right now.

Regarding actually executing the conversion from USD to GBP, TransferWise gives us the best USD > GBP rates, we regularly exchanges a few 10's of $ks. But you might need to email them first to ask to get on their USD beta like we did as I don't think it's publically available. For $500,000 USD I'm being quoted £307,638.10 GBP which is a good benchmark when you compare it to banks etc. Their max transfer size is £1m GBP so you're in the boundary.

As a reference, Barclays are quoting me £284,446 for $500k exchange. (Banks really are revolting businesses, this should be a super competitive service as it costs them virtually nothing to execute these sorts of trades - but they all enjoy the benefits of being in a cartel too much).

Better even than transfer wise is if you can hook up with a US business who has the same problem in reverse, but this is rare and difficult to find! (Startup idea?) If you do find them it would be mututally beneficial for you both to swap at exact mid market rate (~£309,943) but at this point we're talking very small %'s difference.

Thanks for the advice. Will have a look at transfer wise, the broker we currently use is called Ebury partners and they seem to give us better rates than Barclays.

Would be interested to hear what rate the broker is offering you. I can't imagine it would be better than TransferWise as that is pretty near mid market rate. For money exchange like this you should chose on price (as long as you trust the services involved, and TransferWise is a trustable service in my opinion).

No matter how experienced and accomplished, no one knows the answer to this question. You're essentially asking if anyone here can see the future.

When you are trying to do is time the markets. It means that you want your business to be in the business of of currency speculation. This is not your business, and you shouldn't try to make it your business.

Most businesses try to smooth out currency fluctuations. They either do regular transfers, or they buy swaps. (and occasionally, some sort of derivative products.) But the goal is for your business to not to be affected by currency fluctuations. So for example, they might do the transfers every Friday... sometimes they benefit from current exchange rates, sometimes they don't - but they're not holding foreign currency to speculate with currency exchange rates.

Your best bet is to shop around. Fees and service charges can be substantial. Once you find someone who can do it for a good price, just do regular transfers. Your goal is to take the currency fluctuations out of your business equation.

Lastly, if you expect to be producing plenty of off shore cash, you should be talking to some accountants. There is a chance that you are paying taxes that you don't need to pay and your company could be missing out on substantial tax benefits.

Thanks DC, you get it, and you make a good point about not trying to make it our business to speculate on currency.
We're not experts in this and the aim really is to try not to lose money through currency.

In general over the long term it should all balance out, we have just found ourselves in this short term predicament of having a build up of $ which would not normally be a problem, but the company who initially loaned £1m+ to start the business has a few cash flow problems of their own so will need an unusually large amount paid back over a relatively short time.

We did a transfer today of $180k to £ at 1.614 just before the $ lost some value (now at 1.624), and transferred €150k to £ at the same time but lost out on that as the € gained in value at the same time as $ losing value.

Might do as you suggest and make regular transfers every week. Will also look into other options to save on fees.
I think Barclays offer some software which enables you to trade currencies without paying commissions to brokers.

I can see how currency trading could be a fun way to make money if you had a lot of money to play with, but certainly won't be trying to attempt it as a business!

Obviously the answer is bitcoins!

In the future, if you want to eliminate currency exposure for payments before you receive them, you can always use forwards to lock in the exchange rate in advance.

If you regularly need to exchange 500k-1mm, and just generally have the FX risk in your business, I would set up a meeting with a commercial or retail banker. There are numerous innovative strategies they'll be able to provide you with and these salespeople would love to have another few million annually to exchange.

If as a UK company your outflows are in Sterling and you eventually need to convert Euros and USD back to Sterling, a rolling hedging program like dc_ mentioned is a good idea. And yes while your business isn't to speculate on FX, there are strategies that can provide you with price upside while also setting a certain floor.

If however you're ever in a position with a significant cash balance and are uncertain/indifferent on which currency you'll eventually need it in, you can get more creative and actually enhance your earnings. For example, I'll quickly explain one product - the DCD (dual-currency deposit).

Lets say you hold 500k GBP earning little interest, and gbpusd=1.6200. You don't need the cash for 2mths and are indifferent between holding GBP or USD in 2mths time. You effectively loan the cash at an enhanced yield (anywhere between double and perhaps 10 times the 'normal' interest rate, depending mainly on expected volatility, tenor, strike rate). In return for this enhanced yield you effectively give the bank a GBP call / USD put option struck at 1.6200, so if GBP appreciates the bank will keep your GBP and repay you 500kx1.62=810k USD ... if GBP depreciates, the option will go unexcercised and you'll get back your 500k GBP ... in either case you've earned something like 10% interest.

I'm in a similar position but need usd and have cad. Thoughts on using oanda? Seems the cheapest just more difficult.

Never heard of Oanda until now, but looks good (from their website):

"OANDA Corporation has transformed the business of foreign exchange with its innovative online trading platform, fxTrade.

A fully regulated market maker, in 2012 OANDA was named Best Forex Provider by the Financial Times and by Investors Chronicle; Best FX Broker by Forex Magnates; and was recognized by Investment Trends Singapore as providing Best Value for Money and Highest Overall Client Satisfaction.

Meh, I'd tread carefully with these online bucket-shop fx brokers. Who knows if they didn't just pay for those "best of" ads. I would only go with something reputable like a Tradestation.

Look up Norberts Gambit

We have finally started the first stages of a proper hedging strategy, which basically involves forecasting $us sales for the next month, and locking down today's rate on a proportion of these so we can agree to sell the $us at that same rate in 90 days, regardless of currency fluctuation.

We are planning to start with a $400k hedge to test the water (around 50% of projected turnover for April).
If it works ok then look to increase the % for future months.

The advice I received was to not ever try to make profit from the currency markets as it's not our core business, but to take away the uncertainty, which seems to make sense to me.

Do currency fluctuations really pose a risk to your business? And if so, would the possible fluctuation (if it worked against you) be significantly more expensive than the time/money your putting into your hedge?

Yes we have lost between £10k-£40k per month on currency fluctuations over the last 12 months due to the dollar heading in the direction it has.

We may make some of this back if the trend reverses over the next few months which I have heard it will do.

Have been building up some 6-7 figure $reserves which need to be revalued every month.

Looks like you got the take away spot on.

An alternative way to think about it is that each month you are flipping a coin for +/- 30K (based on your numbers.) You can either ride it out with an expected value of zero, or pay someone to take the flip for you.

Based on the size of your bankroll, income stream, cost of hedging, and variance in currency exchange you could use Kelly Criterion to determine the optimal amount of hedging. Attempting to get the currency risk to zero is likely cost prohibitive and not optimal for growth.

A+

I used to use FIRMA when I paid USD for container shipments from China. The minimum exchange was around $25k back then, less if you did regular exchanges.
Recently I got better quotes from Vancouver Bullion Exchange.
It helps if you do a regular trade as your Forex broker will try to get you a better rate so you will come back next month.

Agree:
- Agree with the fact that you can't predict currency pair movements of such high volume currencies
- You still have an issue of being exposed to risk
- Banks take high fees
- other services may exist which are cheaper (transferwise)
- Asking your network if they have an inverse operation may be cost neutral

My take:
- Every trade is -EV, best +EV strat is to keep money as still as possible.
- You may look for short term colocations, especially if you know your due date. 1 Month treasury bonds should pay +0.5% per month. Not much but it tilts things in your favour.
That said if you absolutely know you are going to sell those USD to EUR, then do that as soon as possible.
In some markets doing an inmediate trade pays a premium though. High liquidity market like this, should be very close to 0, especially if P2P.
- Alternative services carry more risk (transferwise)
- Asking your network for inverse trades costs brainpower and expends social capital
- Asking your network may improve your networking by finding people in a similar position
- You may have to widen your range, someone has to.
- You should price this issue into trades, charge slightly more to americans, or be slightly less willing to do business with them.

I'll admit that my experience with this issue is concerned with much lower volumes, but I think the same principle applies, there's always smaller and bigger fish.


Regards, Tom.

Ultimately it's a matter of whether you want to use a centralized exchange for a fee (like a bank or currency exchange) , or go peer to peer (with personal network or a credit union)

Usually, unless you are in an ultra-low margin business, it's much more efficient to pay like 0.5% to 2% of fees for high volume alternative exchangers and save your brain power for business.