Currency hedging for exporters
Currency hedging for exporters: fix the pound value of revenue you are owed in another currency
You win the order and price it against a rate today. The dollars or euros then land weeks or months later, at whatever the rate has become by then.
Selling that future foreign receipt forward now fixes its pound value, so the margin you quoted survives to settlement.
On a $480,000 receivable due in six months, a three-cent move in GBP/USD is worth about £8,000. That is decided by the calendar, not by anything the business controls.
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The exporter’s numbers, in pounds
The exporter’s exposure: you priced the deal in pounds, the cash arrives in dollars
The exposure opens the moment you quote a foreign price and closes only when the receipt converts.
An importer commits to a foreign cost and pays it later. Your position is the mirror of that. You agree a price and win the order now, but the dollars or euros do not become pounds until the invoice is paid and you convert.
Between those two moments the rate moves, and it moves your realised margin with it. On a $480,000 receivable, a three-cent shift in GBP/USD is worth roughly £8,000, computed off a rate near 1.34. Nothing you do to run the business changes that number. The calendar does.
This is transaction exposure: a specific sum of foreign cash you will convert on a known-ish date. It is the risk this page addresses, and selling that cash forward is how you take the guesswork out of it.
For the wider picture on rates and providers, our corporate FX guide sets out the tools, and the currency hedging guide covers the importer’s side.
Selling currency forward: the exporter’s hedge is the mirror image of an importer’s
You sell the incoming dollars or euros and buy pounds, fixing the pound value of the future receipt today. Fixing the rate also gives up any gain if sterling later falls.
Agree the sale rate
You agree today to sell a set amount of foreign currency at a fixed rate on a future date. The importer does the opposite and buys. An unknown future receipt becomes a known number of pounds.
Place the deposit
The provider carries the market risk for you, so it asks for an initial deposit, by industry convention around 5 to 10% of the contract value. It is held against settlement, not charged as a fee.
Manage the position
If sterling falls, your sold-forward position marks against you and the provider can call for more cash. If the expected order changes, the contract does not change with it.
Convert the receipt
On the settlement date you sell the currency at the locked rate. The pounds you receive are the number you fixed, so the margin expected at the point of sale equals the margin realised at settlement.
The locked rate is not today’s spot. A forward is spot adjusted for the GBP/USD interest-rate differential, the forward points.
With Bank Rate at 3.75% just above the Fed’s 3.50 to 3.75%, sterling sits at a small forward discount today, so selling six months forward near 1.3380 gives about £500 more than spot on this receivable. Dated 14 July 2026, and near parity it can flip, so check it live before booking.
Transaction or translation: know which exposure a forward actually fixes
Receiving foreign revenue creates two different problems, and a forward solves only one of them.
- ◆Transaction exposure: the cash you will convert. A specific foreign receipt you will turn into pounds on a date. A deliverable forward locks its pound value, because there is real currency to sell against the contract. This is what you hedge.
- ◆Translation exposure: receipts restated on the books. Foreign-denominated balances and receipts that get re-expressed in sterling in your accounts at each reporting date. The number on the page moves, but no cash is changing hands, so a forward does not fix it.
The mistake: hedging an accounting number instead of a cash flow
The error we see is a business selling forward against a reporting line rather than against money it will actually convert. We would sell forward against real cash flows only.
If the exposure lives only on the balance sheet and never becomes a conversion, a forward adds cost and cash drag without removing a genuine risk.
When to sell forward: hedge net exposure, cover 50 to 80% weighted to the near months, and leave the thin tail open
Certainty, not optimism, sets the weighting. Size the hedge on what is left after your own foreign costs.
Start by sizing the hedge on net foreign exposure, not gross receipts. If you carry USD costs, from USD suppliers, USD borrowing or USD payroll, you already hold a natural hedge.
Subtract those outflows first. Selling 80% of gross receipts while holding matching dollar costs is over-hedging by another route.
Then read the coverage as a blend. The 50 to 80% figure is the aggregate cover of your total net forecast revenue. The per-tenor layers below are what compose that aggregate, not a separate climbing number.
- ◆About 30% at 12 months. Distant revenue is still a forecast. Cover the far months lightly, because you cannot yet evidence most of it.
- ◆Around 50% at 6 months. Orders are firming. You raise the ratio as forecast turns into something closer to confirmed.
- ◆Up to 80% at 1 month. A forecast has become a confirmed invoice, so you cover the near, certain months heavily.
- ◆Blended across the book, those layers average into the 50 to 80% band, and layering up as each period comes into view smooths the average rate you achieve.
Leaving the distant, uncertain tranche open on purpose
This is our view, owned as judgement rather than a rule. We would not force a hedge onto a thin, uncertain, distant tranche, where the deposit and the risk of a margin-call cash drag can outweigh the small exposure it would remove.
Leaving that tranche open is a deliberate commercial choice, not negligence. Cover what you can evidence, and let the far, unconfirmed tail run until it firms up.
The order that gets cancelled after you have hedged it
A specific expected order vanishes. This is different from deliberately covering more than you forecast.
The forward does not cancel when the order does. It is a legally binding contract and it does not lapse because a customer walked away. You are now committed to sell foreign currency you will no longer receive.
Closing out. To unwind, you buy that currency back at the current market rate, or the provider closes the contract out and invoices you the difference. If the rate has moved against your sold-forward position, that difference is a real cash loss on a sale that never happened.
That is why the answer to a cancelled order is not to hope the position quietly disappears. You either replace the receipt, roll the contract, or accept and settle the close-out. Each of those has a cost you can size in advance if you ask the provider how close-out is calculated.
The takeaway
This is volume risk, not a pricing question.
None of this is about whether you got a good rate. The rate did its job. The problem is that the volume you hedged has gone, and the contract that protected it is still live. Hedge orders you can evidence, and keep forecast-only tranches lightly covered so a lost order does not leave you short.
The margin call that arrives when sterling falls
Here the order is still coming, but the rate has moved. Because you sold foreign currency forward, a falling pound counts against you.
Sterling falls
The pound weakens against the currency you sold forward. On the live market that currency is now worth more pounds than your locked rate.
The position marks against you
Your sold-forward contract is marked to market and shows a paper loss, precisely when an unhedged exporter would have been better off.
A call for cleared funds
The provider asks for a top-up in cleared funds, by industry convention within a business day or two, to keep the position collateralised.
Miss it and it closes out
Fail to meet the call and the contract is closed out and the loss invoiced, the close-out mechanism covered in the section above.
Deposit and top-up levels here are industry convention, not one provider’s published term: typically an initial deposit around 5 to 10% of contract value, with top-ups called in cleared funds within a day or two. Confirm the exact figures with the provider before you book.
The deposit and top-ups you place sit as safeguarded client money, not FSCS-protected deposits. The FSCS limit of £120,000 covers bank deposits, not margin parked with an FX provider. A call is a cash-timing hit, not a loss on a lost order.
Over-hedging forecast revenue: our view on the upper line
A deliberate sizing error, distinct from a cancelled order or a rate move. Owned as judgement, not universal truth.
Where we would draw the line
Sell more forward than your actual net receipts and the excess stops being a hedge. It becomes a speculative short position on the currency, with no receipt behind it.
As a calculation, an adverse move on that excess costs roughly 2 to 5% of the hedged amount, about £7,000 to £18,000 on this deal’s £358,700.
In practice we cover confirmed invoices close to fully, keep forecast revenue loosely hedged inside the 50 to 80% net band, and never let the hedge exceed a receipt you can evidence.
- ◆You carry open rate risk on the uncovered portion, so a move against you eats the margin you priced.
- ◆Right for the distant, unconfirmed tail, where certainty is low and the cash drag is not worth it.
- ◆You carry speculative risk on currency with no receipt behind it, plus the deposit and margin-call cash drag.
- ◆If the extra tranche never lands, you are committed to sell currency you never earned.
Worked example: a UK exporter with a $480,000 order due in six months
Certainty shown both ways, with the leave-it-open counterfactual quantified in pounds.
Worked example
Sell six months forward near 1.3380 and you lock about £358,700. Sterling sits at a small forward discount, so the forward gives roughly £500 more than spot gives today. Near parity that can flip, so price it off a live forward quote.
The deposit is 5 to 10% (convention) of that £358,700 pound value, about £18,000 to £36,000, held until settlement rather than charged as a fee.
Now both ways in pounds. If sterling rises to about 1.40, the unhedged $480,000 converts to roughly £342,900, so the forward saved about £15,800.
If sterling falls to about 1.30, it converts to roughly £369,200, so the forward gave up about £10,500 of upside, and the sold-forward position would likely have drawn a margin call along the way.
The forward was not wrong, and we would not call it one. It traded the swing for a known number, which is the whole point of selling forward.
How to compare providers for an export hedging programme
You are running a rolling programme as a seller, not a one-off buy. Verified 14 July 2026; terms change, so confirm directly before booking.
- 01
Ask for the forward rate specifically. Quote the sell rate against the live mid-market, and ask for spot plus or minus the points, so you compare like with like.
- 02
Confirm the deposit and its base. Ask the deposit percentage and confirm it is charged on the sterling contract value, not the dollar notional.
- 03
Pin down the margin call. Ask the trigger and its direction, the top-up increment and the deadline to meet a call in cleared funds.
- 04
Check the maximum forward length you can book, and whether it is available online or only by phone.
- 05
Confirm they support a rolling programme. You want to draw down against invoices as receipts land, not just deal spot each time.
- 06
Read the safeguarding statement. Confirm FCA authorisation. The deposit and top-ups you place sit as safeguarded client money, not FSCS-protected deposits.
Common questions
Do exporters buy or sell currency forward? +
You sell. An exporter receiving foreign revenue books a forward to sell the incoming dollars or euros and buy pounds, which fixes the pound value of the future receipt. An importer does the reverse and buys the foreign currency it will owe.
Should I hedge my gross receipts or my net foreign exposure? +
Net. Subtract your foreign costs, such as dollar suppliers, dollar borrowing or dollar payroll, before you size the hedge. Those outflows are a natural hedge, and covering gross receipts while holding matching costs over-hedges you by another route.
Is the forward rate the same as today’s exchange rate? +
No. The forward rate is spot adjusted for the interest-rate differential between the two currencies.
On 14 July 2026, with Bank Rate a touch above the Fed’s range, a dollar seller selling six months forward locks marginally more pounds than spot. It sits near parity, so it can flip, and you should quote it live.
Why would I get a margin call when the pound is falling in my favour? +
Because you sold forward. A falling pound helps an unhedged exporter, but it marks your locked contract against you, since the currency is now worth more pounds than your fixed rate. The provider calls for a top-up to hold the position. It is a cash-timing hit, not a loss.
Can one forward cover several invoices as the receipts land? +
Often, if the provider supports drawdown. A window or flexible forward lets you draw the currency in stages as each invoice is paid, rather than settling in one go. Ask whether the provider supports a rolling programme and drawing down against invoices before you book.
Tell us about the revenue you’re expecting.
Share the currency, the expected amount, any offsetting foreign costs so we can net the exposure, and when the receipts fall due, including whether they recur and how firm the orders are. We will introduce a provider that fits the exposure and cash flow and is straight about the trade-offs.
For how we compare a provider’s rate and fee against the live mid-market, see how we compare providers.