FX Option structures are not off-the-shelf tools, so are not standardised. Banks in general will focus most of their attention on larger capitalisation clients from which they make more profit. If you are a small to mid capitalisation corporation having a turnover over between £1m and £20m in foreign currency, banks are likely to have less interest in you due to the lower profit margins. In turn, banks will standardise their offerings often pushing you into a structure which will have the largest profit margin for them rather than the most appropriate tool for your needs. In response it’s important to understand your specific needs and take advice from a number of sources, competing banks being ideal.

This is not to say a broker will not do the same so beware of both. The best process is often to get a variety of structure ideas from both your bank/s and a broker and compare, making sure all involved are aware you have been contacted by a variety of suppliers. A possible advantage of using a broker over your banks is meeting your specific needs. Options are completely ad hoc and can be built to meet your individual requirements, for example, if you have a $900,000 contract to hedge if 15 payment streams a broker is likely to be more willing to break down and give you specific short-term hedges for each individual amount.

In contrast a bank may not wish to waste time a will simply buy brics reserved currency offer you a standardised structure which is less desirable and appropriate. Again, these are only factors to consider and your bank may in fact offer excellent advice and structure ideas. It depends on your needs, if you want your supplier to be pro-active and act on your needs immediately you are more likely to get this from a broker. For example, if you turnover £5m in foreign currency per annum and you request a quote from your bank they may take up to a week to price up a variety of ideas for you. A broker is far more likely to provide you with structure ideas on the day. It’s important to push for the best service so if either supplier isn’t responding with structure ideas on the same day as a request politely ask for this to be improved. An additional consideration is to make sure you are speaking directly with the dealing desk rather than a relationship manager, this will influence the level of service and/or the pricing you receive.


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