How does hedging with Currency Options work?

Hedging with currency options allows you to protect your bottom line against fluctuations in exchange rates. And benefit if they start to move in your favour.

Options fall into two basic camps – one where you pay a premium, or fee, up front. One where you don’t pay any premium, but accept a slightly lower rate.

With a premium

You pay a premium, up front, in cash. This lets you buy forward at a fixed rate. It also lets you benefit up to 100% if the exchange rates move in your favour.

How much you get to benefit generally depends on how much fee you pay. Options where you pay a premium tend to give you a bit more flexibility and freedom.

Without a premium

You don’t pay a fee, so the cost is built into your rate. So as an example, while you might get a rate of 1.20 on a forward contract, you might get a rate of around 1.18 on on a zero premium option. You also get to benefit up to 100% if currency values move in your favour.

Options that don’t carry a premium can be slightly more restrictive than those that do.

Over the next few pages we’ve explained four of our most popular Currency Options. But we can do a whole lot more for you too. All you have to do is call us, explain what you want to do, what your attitude to risk is, what you like and don’t like… and we’ll create a structure just for you.