The benefits of hedging against the exchange rate risk
Short-term forwards with a settlement within 10 calendar days require no deposit. For long-term forwards, you must pay a low deposit, or you can use the Treasury Line.
Forwards will save you a significant amount of time and effort for up to two years in advance. You no longer need to monitor how the exchange rate develops.
Amounts from EUR 10,000 or USD 10,000 can be hedged against exchange rate fluctuations. For other currencies, the equivalent of USD 10,000 applies.
According to your requirements, we can change the settlement date of the Forward we originally agreed upon.
Are you looking for advice or answers to your questions? Let us know, we’re happy to help.
We are available to you on working days from 8:00 am to 5:30 pm.
How it works
Before you can start using forwards, Citfin will explain all the details and conclude the Framework Agreement with you.
A future transaction can be arranged with the Dealing Department over the phone. The confirmation can be found in the internet banking system.
Then, you will send a small deposit to the Citfin account or use the Treasury Line’s assigned framework.
On the settlement date, you will transfer the remaining funds to complete the transaction.
Citfin will send the purchased currency according to your instructions.
More options, more savings
Standard Currency Forward
A currency forward with a window is a financial derivative that can secure the current exchange rate for a specific future date.
Currency Forward with a window
Purchase or sell a foreign currency at a rate agreed upon, where the foreign exchange transaction is settled within an “opening” of 2 to 60 days, and which is concluded for no more than 2 years.
Currency Par Forward
A series of currency forwards of the same currency pair with a single exchange rate and different settlement dates.
Currency Par Forward with a window
A series of currency forwards of the same currency pair with a single exchange rate and different settlement dates. For each of these future transactions, a settlement interval of 2 to 60 days can be chosen.
The purchase or sale of one currency for another currency, with its subsequent sale or repurchase after a fixed period, at a pre-agreed exchange rate. It serves to overcome a temporary lack of liquidity in one currency, whilst there is simultaneously an excess of liquidity in another currency.
A currency forward can be used to hedge for the current exchange rate, e.g. the Euro rate for settlement in the future. You lock in today’s price, but you can pay as you go. It is appropriate to “pair” Forwards to one or more invoices.
- The current spot exchange rate at the time of the forward
- Pips, which express the difference between the interest of the sold or purchased currency for a period for which the forward is concluded
- Citfin margin
The risk arising from forward trades is mainly associated with the development of the current exchange rate to client’s disadvantage, when the market exchange rate is more favourable for the client than the exchange rate of the forward trade. At that time, there may be a loss, even in excess of the amount of the deposit made by the client. Before you start using forward trades, learn about the MiFID II directive.
In providing investment services and particularly in trading investment instruments, Citfin – Finanční trhy, a.s. (hereinafter “Citfin”) applies the rules laid down in accordance with the requirements set out in Directive 2014/65/EU of the European Parliament and Council of 15 May 2014 on markets in financial instruments (“MiFID II”), and/or Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 supplementing MiFID II with regard to organizational requirements and operating conditions for investment firms and laying down the terms for the purposes of that Directive (the “Implementing Regulation”) and No. 256/2004 Coll. on doing business on the capital market, as later amended (hereinafter “ZPKT”). The primary objective of these rules is to protect customers, in particular in terms of the scope of the information to be transmitted, the evaluation of information on customer’s expertise and experience and the rules for the transmission and execution of customer’s instructions on investment instruments.
Main changes affecting these areas:
- Assessing the target market – test of product suitability for the customer – Citfin carries out a suitability test of the products offered to its customers. To meet these requirements, an update of investment surveys was prepared and implemented. Its aim is to increase awareness of the possible risks of investment services, especially among non-professional customers, and so ensure a higher level of protection.
- Implementation of instructions under the best conditions and in the best interest of the customer – Citfin has rules in place that aim at ensuring that every individual instruction of the customer is executed under the best conditions and that it is ensured that such instructions are executed consistently under the best possible terms and conditions, in a honest, fair and professional manner and in the best interests of the customer.
- Management of conflicts of interests – Citfin has rules and mechanisms in place to prevent conflicts of interest. To avoid conflicts of interest, Citfin has established an corresponding organizational structure with control mechanisms, ensuring the separation of incompatible roles and guaranteeing the avoidance of conflicts of interest.
- Information on costs and related fees – All costs and related fees charged for the investment services or ancillary services to the customer that should be communicated are based on Annex II to EU Regulation 2017/565. Citfin will provide this information at customer’s request before arranging any specific transaction (specific amount of costs and fees) and then provide it broken down into individual items in the Exchange Trade Confirmation.
The information on the different areas is contained in these documents:
- Basic Company Information
- Investment Services and Instruments
- Categorisation of Clients
- Warning about the Risks Associated with the Use of Investment Instruments
- Conflict of Interests Policy
- Rules for Executing Orders
- Guarantee Fund of Securities Traders
- Rules of Handling Client’s Assets
The application for inclusion in the “Professional Client” category can be found HERE.
No, there are not. You will obtain a forward transaction rate and know how much foreign exchange you will purchase or sell in the future. You will pay no fees.
The rates differ in “pips” (points). These are added to the spot rate and are calculated based on the difference of the traded currencies’ interest rates. The difference in interest rates of both currencies is then reflected in the forward rate.
Yes and no. The agreed date of the transaction is fixed; however, the transaction settlement can be shifted to an earlier or later date than originally agreed upon by using swap transactions.
Small enterprises and sole traders may use future trades to avoid possible loss from exchange rate fluctuations.
By arranging a future transaction, you undertake to settle this transaction. At the same time, Citfin secures the market rate for you. The costs and risks from making this transaction are covered by the paid deposit, which we will return to you the moment the future transaction is settled.
The percentage coverage of your foreign exchange position changes depending on the rate development in the market. If the exchange rate deviates significantly from your hedged rate, the percentage of your deposit changes. This difference needs to be topped up.
It is not. Call our specialists at the Dealing Department, agree on the rate and settlement with them, and that is all you have to do. We will take care of all the rest, and you can enjoy the feeling of knowing, today, how much you will purchase or sell in the future.