If you run a small business, and especially if you often trade in various currencies, you’ll be keen to learn and get involved with foreign exchange (forex) trading. For companies that utilize foreign currencies as a matter of course, finding the most favorable exchange rates is a crucial part of the business model. But forex trading is also a way to keep your company’s finances liquid and to give you a degree of flexibility when you need to use funds to take advantage of other overseas opportunities. The internet has opened up forex trading so that all businesses, big and small, can operate internationally, and – with resources and expert advice only a few clicks away – with confidence. Let’s take a closer look at how forex trading can make an impact on small businesses.
What is Forex?
Foreign exchange trading refers to the relative prices between currencies, and the means through which one currency is changed into another. Forex trading always occurs in currency pairs – you are selling one currency whilst buying another. The fluctuations in currency values mean that it is possible to turn a profit just through forex trading. If, for example, you have fifty euros to trade, it will be worth a different amount in US dollars than it will in Canadian dollars. Being able to read, and to some degree anticipate the market is key to being a successful forex trader.
Reading the Market
Many factors can affect the relative value of a currency. Usually, investments decrease and the price goes down following political upheaval, natural disasters, conflict or instability in a region. Similarly, positive major international coverage (such as the Olympics or the World Cup) or general good news suggests a strong economy and will likely increase the price of local currency. In terms of economic factors, those looking to read the market should keep an eye on the GDP, employment statistics, and inflation figures in their region of interest, as these have a major impact on forex trading.
How Forex Affects Small Businesses
Trading in foreign currencies always has an element of risk, due to the fluctuations in currency values. If you are buying materials from overseas to produce your products, buying from a country with a stronger currency than yours means you will be paying more for those materials. If the currency is weaker than yours, you’ll be paying less. Maybe you are trading with a supplier who wants to be paid in their local currency, or with a customer who wishes to pay in theirs. One way to go about this is to open a bank account in the country in which you are trading – but this isn’t always possible, and can be costly, in which case you will need to find a third-party solution to handle payments. Always thoroughly check out your options, as fees and exchange rates will vary, and it is crucial for your profitability to choose the most favorable service.
Minimizing Risk
It is impossible to trade in foreign currencies with zero risks, and your business will be affected by the way currencies fluctuate in relation to one another. There will also be times where you will be obliged to trade when the market exchange rates aren’t favorable if you have lead times to honor or a deadline to submit a tender. The impact of these risks can be minimized however, with a good awareness of the markets and the currencies in the regions you are trading in, as well as good practice and preparation.
Talk to the Professionals
When it comes to forex trading for your business, it pays to consult with experts. A good step is to seek out a forex broker, who will be able to guide you through all aspects of foreign exchange trading. A cursory search of the internet will show you that there are many such brokers out there vying for your business. Luckily there are plenty of reliable sources for comparing forex brokers to help you make an informed choice that could benefit your business. Generally, you will find a list of the most highly recommended brokers, along with a potential blacklisted tab as well, making it worth your while to look around the page a little.
Shop for Rates
It’s worth noting that high street banks and bureaus de change often don’t have the most competitive exchange rates, so it’s a good idea to dig a little deeper. As mentioned above, an experienced broker will know where to find the best rates, but it is possible to effectively do research on your own should you choose to.
Forex trading can have serious benefits for your small business, and being able to trade internationally with confidence can really broaden your company’s scope. And with the tools available online, it has never been easier to get involved in.