Wealth Managers are under plenty of pressure trying to juggle a host of demands for a successful investment for their clients. Most often, overseas assets provide the highest return but finding the most suitable ones require a huge amount of research, analysis and strategy. What comes with these overseas investments though is the need for best FX execution to help ensure that all previous efforts weren’t wasted and the expected returns are reached - for them and their clients.
So, what is FX best execution?
FX best execution is both an ethical mandate and regulatory requirement that Wealth Managers executing orders for their clients must meet to ensure all possible actions have been taken for the best result. These include:
- Price
- Cost
- Speed
- Likelihood of execution and settlement
- Size, nature or any other relevant consideration to the order’s execution
While the interest for this best practice is primarily focused on the client, investment firms also benefit from the lower transaction cost driven from greater competition.
The challenges to achieving FX best execution
Of course, anyone working with cross border payments wants to get the best FX deal possible, however there are several barriers that make this difficult.
Margin
When it comes to hedging products and managing risk, Wealth Managers are likely using a combination of swaps, forwards and options. With these, they are able to manage the price and create more stability and predictability for their clients, therefore meeting some of the criteria for FX best execution.
However, what is often not discussed when managing pricing and cost is margin needed for the trade in the first place - a hidden cost that can have significant impact.
Where a portion of a total investment is held back for margin or contingent liquidity, either the return is automatically reduced or what is being invested in needs to work harder for the original expected return figure to be met.
This can essentially skew all the figures and therefore new strategy or expectations are needed.
Liquidity and cash flow
While hedging helps to alleviate currency volatility, risk still isn’t entirely mitigated. When a margin call is required because of a losing trade, Wealth Managers need to quickly find more collateral to keep their equity and account value at the agreed minimum.
For many, when free cash flow runs out, assets need to be liquidated to make this happen, but with the short notice, it’s often at unfavourable rates. More stressful yet, for illiquid strategies, this isn’t even an option.
Speed
As the saying goes, time is money, and when it comes to FX best execution, speed alongside best pricing and cost is an important factor.
Typically, trades take around 30 minutes to place and then often, another two hours to execute. For large or time critical investments, this can be too long. The change in currency figures can have a big impact on whether investments will achieve the expected return alongside margin calls and additional collateral requirements that can come in.
Time and credit limits
The better your credit, the better the deal will be for Wealth Managers and their clients. However, setting up and securing credit lines is one of the most time consuming elements to FX infrastructure.
The market today is filled with several choices from traditional banks and FIs to FinTechs, brokers and vertical-focused hedging software. Finding the right provider with the products that meet your credit needs is an arduous process with a long approval lead time, and on top of that, for FX best execution, you need a few providers to compare and choose the best deal from.
How to achieve FX best execution
Technology like NaviHedge offers consistent FX best execution so that Wealth Managers can get back to maximising returns for their clients.
Cost
The market-maker technology removes the need for a liquidity provider and reduces costs along the entire chain as only residual risk needs to be cleared.
Additionally, from a risk management perspective, NaviHedge gives FX exposures in real-time against credit limits and margin calls so Wealth Managers always know how their deal is tracking against expected returns.
Costs are better managed and more savings made as full visibility is continuously provided.
Price
On pricing, NaviHedge is 100% transparent on fees, markups and rates across 140 currencies and uniquely gives comparisons for the best price depending on the trade itself. This allows for any pricing strategy to be better maintained in the long term.
Speed
Also, being cloud-based with API integration, setting up NaviHedge is a simple plug and play action and once done, trades can be placed within minutes.
Likelihood of execution and settlement
Being the first end-to-end FX and payments platform, the whole cross-border process is streamlined resulting in greater efficiency and productivity. Execution is part of this process while live payment tracking meets the settlement criteria for FX best execution.
NaviHedge is bringing FX and payments into the future so that Wealth Managers can get the best results for their clients without the need for additional heavy regulatory and tech investment. Get in touch to hear more about the platform.
