Margin-free FX Hedging
Firms that hedge, using forward contracts for example, must also consider that placing a hedge typically requires margin to be posted against that position as collateral. Further, if the initial margin no longer covers the mark-to-market of a hedge, due to movements in the spot rate, the firm may be required to post additional, variation margin.
Any capital posted as collateral is effectively sitting dormant in a margin account and not available as working capital. The FX risk, mitigated with forward contracts, has been replaced with a potential liquidity risk.
One way around this issue is to trade via an uncollateralised FX facility – margin-free hedging. This means you can can hedge using forwards and not worry about posting margin.
Some solutions crucially offer this service without jeopardising best execution, ensuring total cost transparency.
What is MillTechFX?
We provide access to a transparent marketplace for comparative FX execution from up to 15+ counterparty banks, while harnessing a unique and significant pricing efficiency for our clients and reducing their operational burden. In addition, MillTechFX provides clients with full transparency of execution via independent TCA reporting.