Don’t gamble on your foreign exchange

Online gambling has undergone major growth in the last few years. Technological advances, the popularity of mobile devices and ease of transaction have seen mainstream advertising ramped up.

By pushing the lure into our living rooms, these businesses have been able to tap into something that is at the core of the Australian culture – the love of a punt. There’s no other country where a horse race literally stops a nation, or people not playing two-up are labelled “un-Australian”.

Risky mindset

But this innate love of gambling can infiltrate or permeate throughout society and the business world with some devastating consequences. For us at OzForex, it is evident that some clients find it hard to resist the urge to gamble with their foreign exchange, risking the livelihood of their business, family and employees on something not only completely out of their control, but which they do not fully understand. Foreign exchange should not be treated as a game of chance.

Although trying to predict future exchange rates may be considered as somewhat of a bet or a gamble on the future, there is an important distinction to be made.

Don’t bet your business

Despite the perception that foreign exchange (FX) is a game of chance, one should never use this as a basis for business decision-making. If you want to satisfy an itch to bet on the dollar, then open a separate FX margin trading account (there are hundreds out there). Do this in your own name, and segregate its funds from those used for your business. This is vital if the decision-maker is of a speculative mindset but wants the business to survive.

Business decisions should be made on what is known at the time, not a guess into the future. I realise some businesses have to rely more heavily than others on cashflow forecasts and as such their business decisions are based around these. But even in this case there are some simple rules decision-makers can follow to ensure they are not unnecessarily gambling with the livelihood of their business.

1. Be conservative – this should permeate throughout all decision-making areas. If you have a cashflow forecast why not discount it by a fixed percentage? If you are thinking of hedging foreign currency exposure why not reduce the amount of cover so it’s less than your forecasts?

2. Consider hedging the currency risk – if you are not doing so then think about it and research the different products out there. This will help you commit to a plan that minimises the temptation to gamble. And NO hedging itself is NOT a gamble. It is locking in a profit margin or a cost base.

3. Have a plan – This one is critical for those at risk of blurring the line between gambling and business. Often referred to as a FX hedging policy, it is critical to commit to something in writing and have others in the business sign off on it and any later changes.

4. Regularly review – Either quarterly or semi-annually, review your FX hedging policy to ensure proper procedures are being followed. Even if you decide not to hedge, it is still important to review this decision as you may either have to or want to change it as your business evolves. This is a must-have discipline for all businesses but especially if there is a risk that gambling may or has crept in.

I understand that gambling, for some people, is an addiction and it’s not an easy thing to overcome, so I do urge any readers that may have a problem to seek help.

It takes a strong discipline for anyone to stick to the principles listed above but especially for those predisposed to gamble.

Jim Vrondas is chief currency and payment strategist, Asia-Pacific, at OzForex, Australia’s leading international payments solution provider.