The foreign exchange (FX) market is one of the highest-volume markets in the financial world; annualized FX trading equates to an astounding 13 times global GDP. Multinational corporations (MNCs) are, necessarily, major participants in this market. In order to hedge their FX risk, MNCs trade large volumes of FX-based derivatives. However, the playing field for these trades is often tilted in favor of their banking partners in OTC trading. FX derivatives constitute only 9% of all derivative volume (IR, FX, equity, commodity, credit), but 58.8% of all derivative profit. Reducing that advantage is an important part of any hedging program.
You can reduce pricing spreads with a few simple strategies. Specify your trades to be executed at the WM-Reuters fixing rate, established every day at 10am NYC/4pm London. Trade your OTC contracts on the same day as the CME and other FX exchanges - a EURUSD contract on the OTC should converge to the same value as an exchange-traded contract. To avoid front running and reduce spreads even further, establish an anonymous trading program, using a prime broker and a trading platform through FXall or 360T.
Currency Risk Management offers several analytic tools and capabilities to further reduce your hedging costs.