Understand Your Options, Get Ahead of the Market

This end of year has been so far marked by the pressure created by COVID-19. With the treat of the virus still there and the recent announcement of further restrictions in most countries and in England the uncertainty in the markets are likely to continue.

Should you need to complete on your property purchase in the next couple of months or are waiting to make a payment, the uncertainty created by all these events could be overwhelming.

The volatility on the exchange rates can pose a big risk to your budget and therefore it is important to account for it from the very beginning. However fluctuations can also present an opportunity to improve your budget if the rate movement is in the right direction. If that happens being able to act quickly to take advantage of that movement is key.

Deciding what do and when to do it will depend mainly on your risk threshold.

For those who are looking for certainty the best option might be to lock the exchange rate ahead of your payment via a forward contract.

This option has a clear advantage for those involved in a property transaction. By fixing the exchange rate you also fix the purchase price avoiding last minutes changes that could have really risky consequences.

What shall I consider when booking a forward contract?

• You don’t need to pay the full amount that you are fixing so it is an attractive tool for those whom might not yet have the full funds available. However you need to bear in mind that in order to fix the rate you will need to deposit 10% of the whole amount you are fixing. This is not a cost but just a deposit to ensure you will full fill the contract when the payment date arrives.
• Once you fix the rate you won’t be able to change it. This means that if the rate moves even higher after fixing it you won’t be able to swap the fixed rate for the better rate.
• If you need to cancel the contract you might incur in a loss if the market has moved against you.

But for those who remain optimistic that the rates might improve between now and their completion date a market order might be a better idea.

What shall I consider when placing a market order?

• With a market order you agree with your dealer a rate of exchange –higher than the current market one- and if such rate is achieved your order is automatically fulfilled and your Euros are bought at that price.
• The advantage of a market order is that it allows you to take advantage of a rate movement even if this happens quickly, briefly or whilst we are not at the office.
• Once the order is fulfilled you won’t be able to change it. This means that if the rate moves even higher after your level has been reached you won’t be able to change it.

You can combine a market order with a stop limit order that allows you to protect your transaction to go below certain rate. This orders could be handy for those property buyers

Forward contracts and market orders might not be available through your high street bank or your online provider however they are offered by well-established foreign exchange specialist such moneycorp.