Jordan A Smith
Director/Founder at AlbaFX
A reason to consider using Market Orders to maximise the value in currency transactions. Having had a number of clients successfully trigger their orders on last weeks currency swings, I thought it worth sharing.
GBP/EUR levels over the past week have been particularly volatile as demonstrated by the graph. With many companies transacting on SPOT, this is an ideal opportunity to outline why the increasingly popular Market Order tool can work very well to ensure your business maximises the value when transacting on SPOT or even Forward Contract.
How many times do you look at the exchange rate achieved on SPOT transactions or when committing to a Forward Contract and feel that if you transacted yesterday or earlier this morning that you would have had a better rate?
A market order is a set trigger level agreed between you and your specialist dealer to transact -buy or sell, that is locked on our system should the market move to that level. What this does is assist business owners and Finance Directors who have a desired rate to achieve in a time-frame but do not have time to monitor the market every minute of the day. The rate of course may never be reached in the time-frame but in that case the trade would be execute on due date as per the normal process.
Last week until Thursday lunchtime ECB announcement, the levels had been reasonably undramatic in the 1.29/1.28 mainly but immediately after the announcement the market reacted significantly, firstly with a spike through 1.30 and then fell to 1.27s within couple of hours. Swings of over 3 cents. This allowed those clients who are sending € payments with a 1.30 target rate to benefit from achieving this, as the SPOT and Forward orders are automatically captured. This also allowed those selling € back to £ with desired levels of 1.27s to also benefit as it automatically was captured. What this means in real terms is the difference between executing a 100k (£) trade at 1.28 and 1.30 is around£1,600.
In Short, this is simply an additional tool than can help businesses benefit from an upside in the right circumstances. Another way to work smarter on currency management and leverage the tools and products that are available to your advantage. Something that if not considered before is well worth a conversation.......