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FX hedging instruments
The instruments Vantry Capital Inc. provides to put a hedging decision into effect, from spot conversion and forwards to options and structured hedges. Each can be compared in Vantry ATI against your exposure, budget rate and risk tolerance before you decide, then executed in the platform or through our dealing desk.
Conversion today, and certainty for future cash flows
Spot converts currency for immediate needs. Forwards fix the rate for a future cash flow, and are the foundation of most hedging programs.
Each chart plots the rate achieved (up) against the market rate at maturity (across) for a business selling foreign currency, such as a Canadian exporter selling US dollars. Charts are illustrative, not quotations.
Spot
Buy or sell a currency at the current rate, for prompt settlement.
Suits: payments and receipts due now.
Bear in mind: converts at today's rate; it does not protect future cash flows.
Fixed date forward
Agree a rate today for exchange on a set future date.
Suits: known payments or receipts.
Bear in mind: no benefit if the market moves in your favour, and the contract must be settled.
Window and open forwards
One agreed rate, drawn down in parts at any time within a window, or at any time up to maturity for an open forward.
Suits: payments whose timing is uncertain.
Bear in mind: the rate reflects the flexibility, and any balance still open at maturity must be settled then.
Forwards require a credit facility with Vantry Capital Inc. Window and open forwards are subject to credit approval.
Protection with defined flexibility
Options set a protected rate while keeping some or all of a favourable move. Structures combine options to balance protection, participation and cost. Many are arranged with no upfront premium; the cost is then carried in a less favourable protected rate, a cap on the benefit, or an obligation to exchange.
Vanilla options
The right, not the obligation, to exchange at an agreed rate on expiry. A seller of foreign currency buys a put on it; a buyer buys a call.
Bear in mind: a premium paid upfront, which depends on the strike, the term and market volatility.
Collars
A protected rate and a cap on the benefit: protection is bought and participation beyond the cap is sold, often for no upfront premium.
Bear in mind: beyond the cap you exchange at the cap. If the sold side covers a larger amount than the protection, you may have to exchange more than you hedged.
Participating forwards
A protected rate, set below the forward, with an agreed share of any favourable move, typically for no upfront premium.
Bear in mind: a less favourable protected rate than a forward, and only part of any improvement.
Forward extras
A protected rate below the forward, with the benefit of favourable moves up to a barrier. If the barrier is reached, the benefit falls away and you exchange at the protected rate.
Bear in mind: the term sheet sets whether the barrier counts only at expiry (European) or at any time (American); with an American barrier, one touch is enough, even if the rate later moves back.
Seagull: no protection below the lower level.
Other structures
Seagulls, trigger seagulls, structures with knock in and knock out barriers, leveraged and tracker forwards, and forward extras with bonus can be evaluated in Vantry ATI for businesses whose policy permits them.
No guaranteed worst case: seagulls, structures with knock out barriers and leveraged forwards can produce outcomes worse than a forward, for example below a lower strike, after protection knocks out, or on a leveraged amount. Availability depends on the structure and your eligibility, and we explain these conditions before any structure is executed.
How products are executed
Analysis and execution are separate steps. Any product can be compared in Vantry ATI first; execution then happens in the platform or through our dealing desk, depending on the instrument.
Spot and forwards
Booked in the client portal at a quoted rate, within your credit terms, or through our dealing desk. In the platform
Options and structures
Priced in Vantry ATI and executed by our dealing desk, with an indicative term sheet where needed. They are not booked online. With our dealing desk
Drawdowns and settlement
Forwards are applied to payments as invoices fall due. Trades are funded by wire, pre-authorized debit or a holding account.
Confirmations
Spot and forward trades are confirmed by email with a PDF trade confirmation.
Eligibility and risk. Products are offered in Canada by Vantry Capital Inc. Availability depends on client eligibility, credit approval and the hedging policy your business has approved; forwards and most structures require a credit facility. Options and structured products involve risks, including giving up favourable moves, being obliged to exchange at a less favourable rate or for a larger amount, and, for barrier or leveraged structures, outcomes worse than a forward. No structure is suitable for every business, and nothing on this page is investment advice.
Discuss suitable hedging alternatives
Speak with a dealer about your exposure. We can compare the alternatives in Vantry ATI with you before you decide.