FX hedging
FX hedging is using contracts such as forwards, swaps or options to fix or limit the exchange rate on a future currency need, so rate moves do not erode margins or balances. Payment firms hedge exposures such as foreign currency balances held with partners and customer funds awaiting conversion.
How it works
An outright forward fixes a rate today for delivery more than two business days later. An FX swap combines a spot trade with a forward in the opposite direction and is widely used to manage FX funding liquidity. The BIS 2025 survey found outright forwards at $1.8 trillion a day, 19% of turnover, and FX swaps at $4 trillion, 42%, mostly with maturities of seven days or less.
Hedging demand rises with volatility. The BIS links the jump in forward turnover in April 2025 to institutional investors selling dollars forward to limit losses after US tariff announcements. Total FX turnover averaged $9.6 trillion a day that month, 28% more than in 2022.
Remittance firms' filings show short-dated hedging. Intermex reported open tom and spot contracts in Mexican pesos and Guatemalan quetzales of about $12.7 million at the end of 2024, used for economic hedging without hedge accounting. Remitly's filing shows that a 10% move in the dollar would change the value of its foreign currency transaction assets and liabilities by $37.9 million at 31 December 2025.
Example
A firm must deliver MXN 90,000,000 of payouts next Friday and buys the pesos forward today at 18.00, for $5,000,000. If the peso strengthens to 17.50 by Friday, buying spot would cost $5,142,857, so the forward saves $142,857. Had the peso weakened instead, the firm would have given up the gain.
Frequently asked questions
Should a payment firm hedge balances held with partners?
Weigh the size of the balance, how long it is held and the currency's volatility against the cost of the hedge. A balance held for one day carries far less exposure than one held over a long weekend.
What is the difference between a forward and a swap?
A forward is a single exchange at an agreed rate on a future date. A swap pairs two exchanges in opposite directions, typically a spot and a forward, with the same counterparty.
Where Polynopsis fits
Polynopsis shows foreign currency balances held with partners and money in flight, which is the exposure a hedge has to cover.
Related terms
Sources
- Triennial Central Bank Survey: OTC foreign exchange turnover in April 2025 · Bank for International Settlements
- Triennial Survey reporting guidelines for turnover in April 2025 · Bank for International Settlements
- Basel Framework, RMA20: Foreign exchange risks · Basel Committee on Banking Supervision
- International Money Express, Inc. Form 10-K for fiscal year 2024 · U.S. Securities and Exchange Commission (EDGAR)
- Remitly Global, Inc. Form 10-K for fiscal year 2025 · U.S. Securities and Exchange Commission (EDGAR)
Know where all your money is.
Polynopsis gives cross-border payment teams one live position across every bank, payout partner, exchange and wallet, including money in flight, and warns before a corridor runs dry.
About Polynopsis
Polynopsis is liquidity management software for cross-border payment companies. The name joins poly, many, and synopsis, a seeing together: one live view of money spread across many banks, payout partners, exchanges and stablecoin wallets, including money in flight, with a warning before any corridor runs dry.
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