Protect your Business’s Bottomline with Forward Contracts
Sydney 08 May,2025
A business making or receiving international payments is potentially exposed to the risks posed by currency market volatility.
Profitability can be impacted dramatically by this volatility, with an unfavourable shift in the currency market potentially costing them thousands depending on the size of their transfers.
There are ways for companies to take more proactive steps in safeguarding against currencymvolatility while also boosting profit margins.
While Spot Transfers are ideal for when a company needs to move money quickly. These transfers are made at the current market rate, meaning you are highly exposed to daily fluctuations.
Market Orders are useful when companies are targeting a specific exchange rate. Limit Orders allow you to target an exchange rate above the prevailing rate which will be executed automatically when your chosen rate is hit, whilst with a Stop Loss Order you can hold out for a more favourable rate, whilst also protecting against any sudden rate drops.
Meanwhile, Forward Contracts allow an exchange rate to be fixed for up to two years and offers companies greater certainty with their budgets and cashflows. While locking in a rate in this way would mean you’d miss out if the exchange rate strengthened, your future transfer would be protected from any negative market movements.
This photo illustration shows Chinese 100 yuan notes (red) and US 100 dollar notes, in Beijing on April 8, 2025. (Photo by Jade GAO / AFP)
Protecting Your Cash Flow through Forward Contracts
Being able to lock in an exchange rate through a forward contract is a highly effective way for companies to manage their currency risks and provide certainty and a predictable cashflow.
Forwards are perfect if you have a payment to make for goods or services in the future and you want to protect yourself against the risks of market volatility.
But how might using a forward contract work in practice?
The Challenge
Companies find it very difficult to budget and manage their cashflows when using different currencies.
Your company may make monthly transfers in EUR and USD to purchase from overseas suppliers and repatriate earnings. But heightened volatility in the currency markets means that a company’s costs and profits could vary massively from month to month.
Solution
Companies need to come up with strategies to insulate their budgets from FX volatility.
For example, when the Australian Dollar is strong, a company may use forward contracts to lock in a favourable exchange rate when paying overseas suppliers. They may also consider setting up rate alerts to take advantage of better FX rates when market conditions improve.
Impact
With the exchange rates locked in, companies now have predictable cashflows to work with. This makes it much easier to budget and forward plan, it gives them the ability to focus on their core areas of business.
Conclusion
Specialist foreign exchange providers can be a good alternative to traditional banks. In a lot of cases, they can provide companies with more competitive rates and tailored FX solutions.
TorFX is an award-winning currency specialist who can help companies with their foreign exchange requirements, their service is also fee free. TorFX provides a highly personalised service, clients are assigned their own dedicated Account Manager, providing support and guidance on currency market movements and helping identify the best time to move their money.
If you would like to learn more, you can contact Brett Strazzaboschi, Partnerships Manager, at TorFX on +61 7 5560 4402 or by email: brett.strazzaboschi@torfx.com.au for an informal chat.
Alternatively, you can request to Get a free quote to find out how TorFX could potentially help improve your company’s bottom line and maximise your profit margins.
