What is currency hedging? Protecting against exchange rate moves
By SendPay Business · · 2 min read
Currency hedging means taking steps to reduce the damage exchange rate moves can do. A business that buys or sells abroad can see its profit shrink simply because a currency moved between agreeing a price and paying.
A simple example
A UK shop agrees to pay a US supplier $10,000 in three months. If the pound falls against the dollar in that time, the same invoice costs more in pounds, even though nothing else changed.
The main ways to hedge
- Forward contract: fix an exchange rate today for a payment later.
- Currency option: pay for the right, but not the duty, to exchange at a set rate.
- Natural hedge: earn and spend in the same currency so moves cancel out.
- Hold foreign currency: keep a balance in the currency you pay in.
Does a small business need it?
Hedging has costs and can mean missing out when rates move your way. It tends to matter most when foreign currency payments are large compared with profit, or when prices are fixed well in advance.
Where SendPay fits
SendPay platforms include GBP, EUR and USD accounts and currency exchange under your own brand, powered by licensed partners, so balances can be held in the currency you pay in. SendPay doesn't offer forward contracts or options.
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What if I fix only part of a bill?
Our free currency hedge calculator compares fixing all, none or part of it.
Currency hedge calculator →Read next
This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. PayPal, Patreon and Substack are named as reference points only and are not affiliated with SendPay Business.