26 Jun 2019
FX: timing is everything and planning is key
The foreign exchange markets can be volatile, and they are certainly fast-paced with change coming quickly based on a political comment or data release.
As with any asset class, getting your timing right by planning carefully can mean the difference between successfully managing your risk and being caught by swift changes in the market.
As Brexit, global trade talks and global uncertainty continues to play on the market, David Bimpson from Investec Private Bank’s Foreign Exchange (FX) desk, gives his take on how markets can react to world events and how to be ready to respond.
"Many of our clients are used to making critical decisions during uncertain times in their professional lives. Whether they’re business owners or CEOs managing their business expansion, or fund managers and private equity professionals investing their client’s funds, they’ll be making complex financial decisions in markets that can change in a matter of minutes.
Sometimes though, I see inertia when it comes to our client’s personal finances. There’s a lot of political and market fatigue at present around topics like Brexit and global trade tariffs – the last thing most people want to do when they’ve been navigating the murky waters of today’s business environment is to then go home and do the same for their personal finances.
Managing market uncertainty
For the clients we work with, the slow-turning cogs of Brexit, for example, will be making themselves felt across every part of their business, which results in them putting their personal finances on the back-bench. Inertia has a strong pull on their risk management thinking when it comes to currency market fluctuations. Do clients only feel a major market move is something worth reacting too? Is it just us dealers who get excited by the “small moves” as we look for patterns and trends, or should everyone be looking and listening?
Planning how to manage these risks is something we want our clients to think about. In the same way, many business owners hedge their currency exposure when placing orders in foreign currencies, those who apply that same mentality to their personal finances are the ones who really get the most from our FX offering.
What’s in a penny?
I saw recently just how important it is to continually review and reactively manage your FX strategy. It was the middle of May and the lack of progress in Brexit talks had seen the market enter a downward trend and hit a plateau. Then came announcements from Downing Street which caused the pound to rally. Those clients who thought they would “run the market” got caught out by this move, which had a direct effect on the value of the currency they were looking to convert.
Making the most of Foreign Exchange
As dealers, we don’t have crystal balls and we often ask ourselves “what is the new normal?” Analysis will only get us so far in helping to understand market movements and we think our clients should be asking themselves questions like:
- How well positioned am I for different market scenarios?
- How would a market movement affect my position?
- What do I want to achieve from this position?
- What does my time frame look like and what is the opportunity cost of this transaction?
Political and economic uncertainty can easily rattle the markets and all you can do is plan accordingly using the tools and expertise available to you.
We understand that our clients live global lives, with business and personal interests both at home and abroad. Personally, the work that really excites me is when we can get a seat at the table when clients are making decisions, which enables us to better service their FX requirements as new opportunities arise.
Yes, inertia is an issue, and it’s still going to be even once today’s political and economic uncertainty subsides. What isn’t going to change is the need to put a plan in place, continually review it, and treat personal foreign exchange exposure in exactly the same way you would in business.
The opinions and views expressed in the above article are for general information purposes, they should not be construed as recommendations or advice for any individual.