A variety of options that can offer protection, like vanilla options, but sacrifice some of the benefits in exchange for no up-front premium.
Collar
Collars work by combining two separate options agreements: an option which gives you the right to sell a currency at a protected rate, and an option which would act as a best-case rate.
If, at the pre-agreed expiry date, the rate of exchange is inferior to the worst-case rate, you’re protected. If the rate of exchange is beyond the best-case rate, you’re obliged to deal at the best-case rate. If the rate of exchange is between the two levels, you are free to trade at the prevailing rate.
Participating Forward
A participating forward allows you to hedge against negative currency fluctuations but at the same time be able to benefit, in part, from favourable market movements.
This is achieved by agreeing on a ‘strike rate’ which gives you the right to exchange at the protected rate should the currency pair move against you, while also allowing you to participate in a percentage of any favourable rate movements – this is usually 50% but can be tailored to requirements.
And more than 20 other premium-free options
Learn about other zero-cost FX options including knock-out options and extendible FX options that could help your business manage risk by calling +353 1 211 8666.
Frequently Asked Questions
When dealing in volatile currencies or in times when global trade and politics are somewhat unpredictable, options can provide a level of assurance and flexibility when it comes to your business’s FX hedging strategy.
Options and forwards can both be useful risk management tools which can provide a guaranteed price. However, unlike a forward, an option can also benefit you if the market is in your favour on expiry. Options can also be structured to allow for no immediate up-front cost and can be tailored to your specific business needs
Many FX options can be structured with zero up-front cost, while vanilla options carry a premium. This premium varies and is entirely dependent on how long you want to hold the option for, the strike rate of the option, and the volatility of the currency you wish to exchange. Our moneycorp experts can help you identify the costs and risks associated with an FX option for your business.
In addition to a foreign exchange options, we also provide a wide range of FX solutions for you and your business’s unique needs.