This article is provided by Alt21 Limited, trading as Alt21, an FCA authorised payments and FX provider and is intended for UK businesses considering FX hedging as part of their treasury activity. Any example or figure provided are illustrative only. FX hedging products carry risk, including the risk that rates move against you and that you may be asked to provide collateral at short notice, which could affect your cash flow. Comments from Pritesh Ruparel, Group Chief Executive Office (CEO) of Alt21 are contained within the article. As an Alt21 employee, his comments reflect his own experience working with Alt21’s clients and describe Alt21’s own products and approach, rather than independent market commentary. Descriptions of future technology show where the market may be heading and do not describe Alt21’s current services. Hedging products and margin funding are subject to eligibility and are not suitable for every business. Please read the full disclaimer at the bottom of the page.
The future of FX hedging probably won’t be defined by a new product.
It may be defined by how little time finance teams have to spend thinking about the process around it.
Today, managing currency exposure can involve pulling data from different systems, working out what needs to be hedged, checking rates, speaking to a provider, executing a transaction and then reconciling everything afterwards.
Much of that process exists because the technology to connect the pieces either wasn’t available or wasn’t being used.
That’s starting to change.
Financial data can increasingly be brought together, analysed and acted on according to rules a business has already set. AI could make it easier to interrogate that information and support the decisions that sit around it.
The result could be a different relationship between finance teams, technology and FX experts. Technology may be able to handle more of the process, while finance teams make the decisions and stay in control.
We sat down with Alt21 CEO Pritesh (Prit) Ruparel to hear his thoughts on the above and where he thinks the future of FX hedging is headed.
The future of FX hedging starts with data
For Prit, the future starts with something much less exciting than trying to predict the next move in GBP/USD.
It starts with data.
A business may already have much of the information it needs to understand its currency exposure sitting across its bank accounts, accounting software and other financial systems.
The problem is bringing that information together and making it useful.
Prit describes a future where those data sources feed into a clearer picture of the business’s exposure, helping finance teams understand where currency movements could affect them before they decide what to do about it.
Instead of beginning with an FX transaction, the process begins with the business.
- What currencies are you exposed to?
- When are payments or receipts expected?
- What exchange rates have been used in your budgets?
- What hedges are already in place?
- How much uncertainty is the business prepared to accept?
Once you have that information, currency management can become less reactive.
Technology makes more of the process repeatable
A lot of traditional FX management happens transaction by transaction.
A payment approaches, someone checks the rate, and then the team decides whether or not to hedge. Perhaps they speak to an FX provider, who helps them make the decision. Then the process begins again when the next exposure appears.
Technology creates the opportunity to move more of those decisions upstream because a finance team can establish its objectives and parameters first.
Prit describes this as increasingly rules-based. The business might establish parameters around its budget rate or how it wants certain exposures managed, then periodically review whether those parameters remain appropriate.
“It’s rules-based decision-making. You decide a few parameters, then you review it periodically.”
“I think the human role here is to help them get set up, then review it periodically with them until they get comfortable enough to do this on their own.”
The technology can then do more of the work required to apply them consistently. That doesn’t mean handing over control. The business still decides what it’s trying to achieve and establishes the boundaries within which the technology operates – the only thing that’s changed is that the decision has become more of a repeatable process.
Rules do not remove risk. A hedge executed under a rule may be at a rate that later proves less favourable than the market, and rules need to be reviewed as circumstances change.
Learn more about FX risk management.
The decision will remain with the business
Giving technology more responsibility makes the boundary between decision support and decision-making increasingly important.
For Prit, the boundary is fairly clear:
“The decision needs to be human. If you’re talking about execution timing, that can be automated within parameters.”
Technology can gather information, calculate, monitor and surface what’s happening, while AI can help people understand increasingly complex sets of information.
Once the business has established its parameters, execution can also become more automated.
But you’ll still need to decide:
- What those parameters are.
- How much exposure do you want to hedge?
- What are you trying to protect?
- How much uncertainty can you tolerate?
- What costs and commitments are you prepared to accept?
Those aren’t questions an AI system should quietly answer on the company’s behalf.
There is, however, another side to making financial technology increasingly autonomous.
The more a system can do, the more carefully a business needs to decide what it’s allowed to do.
An AI agent with unrestricted authority over a company’s money is very different from technology executing a predefined action within an approved set of parameters.
That makes controls fundamental to the future of automated FX.
- Who can establish or change the rules?
- What transactions can be executed automatically?
- What limits apply?
- Which actions require approval?
- When should the system stop and ask for human input?
Automation should operate within boundaries the business deliberately establishes.
“It’s not making the decisions for you. You’re telling it what to do.”
The aim is to remove the repetitive work that happens after Finance has already made the underlying decision.
Hedging becomes embedded in the business
The next step for FX hedging is connecting that process to the point where currency exposure actually arises.
Imagine a business raises an invoice in another currency.
Today, that information may sit in one system. Later, someone in Finance identifies the exposure, checks the company’s hedging position and decides whether action is required. They may then move into another platform to execute the hedge.
But if the business has already established how it wants certain exposures managed, why does each step need to happen separately?
Embedded hedging creates the possibility of applying those rules closer to the point the exposure is created.
An invoice is raised, and the exposure becomes visible. The system then assesses it against parameters the business has already established.
Where appropriate, the next step in the process can happen without somebody having to spot the exposure and start a separate workflow.
A hedge executed automatically is still a binding contract. As one booked manually, it carries the same risks and costs, which can include margin requirements, counterparty and settlement risk, and the loss of any benefit from favourable rate movements. This is why the rules behind it matter.
For Prit, that’s ultimately where FX management should be heading:
“The more we push this as just something that runs in the background, the better.”
Even where processes run in the background, hedging remains a financial commitment, and a business should keep the parameters under regular review.
The aim is to make the administration around hedging less intrusive, not to take the hedging decision out of Finance’s hands.
More technology doesn’t have to mean more complex products
There is an assumption that giving customers more sophisticated financial technology will inevitably lead them towards more sophisticated financial products.
Prit thinks the opposite can happen.
As customers become more knowledgeable about FX, they can become more interested in understanding what they’re paying, why they’re paying it and whether a complex product is actually necessary.
Some may move towards simpler products used more systematically. Even simpler products, such as FX Forwards, are classed as complex derivatives in the UK as they create binding obligations and carry risk.
The goal of better technology shouldn’t be to expose a finance team to as many financial products as possible, but to give them enough information to understand their exposure, the approaches available and the implications of the decisions they’re making.
Education becomes part of the product
Self-service also doesn’t mean leaving customers alone.
As more financial activity moves into digital platforms, education increasingly becomes part of the product experience itself.
Someone shouldn’t need years of FX experience to understand what a forward contract does, what an option premium represents or how a change in an exchange rate could affect their forecast.
Digital tools can make that kind of information easier to access when it’s needed.
AI could narrow that gap further.
As Prit puts it:
“Knowledge access, that’s the best use case of AI, in my opinion. It’s accessible. It’s out there. Just ask questions.”
A finance team could ask questions in ordinary language rather than needing to understand exactly where information sits or how a particular FX calculation works.
But that experience needs to be reliable.
A confident answer isn’t useful if the underlying information is wrong.
The challenge for financial technology is therefore not simply making information easier to access. It’s making sure the information being surfaced is accurate, understandable and connected to the customer’s actual financial position.
Reminder: AI-generated answers can be inaccurate or incomplete, are not financial advice and should not be relied on as the sole basis for a hedging decision.
Does AI mean predicting exchange rates?
This is where the conversation around AI and FX can go in the wrong direction.
Ask what AI could do for currency management, and it’s tempting to jump immediately to prediction.
Could it analyse enough data to tell you where sterling will be next month?
Could it identify the perfect moment to hedge?
Prit is sceptical that this is where the value lies:
“People say, ‘Do you think now is a good time to buy or sell FX?’ I always go, well, it’s a coin flip. I don’t know that. What I can tell you is that the data says XYZ.”
The more useful application of AI is helping finance teams understand the information already available to them.
Exchange rates respond to economic data, politics, monetary policy, market positioning and events nobody necessarily saw coming.
Combine market information with the company’s own data, and AI could make it easier to interrogate questions about exposure, existing hedges, forecasts and budget rates.
Instead of asking:
What will GBP/USD do next?
A finance team could ask:
What happens to our forecast margin if GBP/USD moves by 5%?
Or:
Which of our expected payments create the greatest currency exposure over the next six months?
Or:
How does our existing hedging position compare with the parameters in our FX policy?
“It’s giving all that intelligence that people don’t have, which is the intelligence of the market and then the intelligence of their own data.”
That’s a very different potential role for AI. AI isn’t a crystal ball or a way to predict the market. AI could help finance teams interrogate and understand the information available to them, while the decisions remain with the business.
Learn more about AI FX hedging.
Where does human expertise still add value?
If data becomes connected, routine execution becomes self-service, and more processes are automated, what happens to the FX expert?
Their role changes.
Checking a rate shouldn’t require a phone call.
Executing a routine transaction shouldn’t necessarily require one either.
But there are circumstances where speaking to someone with genuine market expertise can still be valuable.
Prit gives the example of a transaction that is unusually large or outside the company’s normal activity. A finance team may want to understand different ways of executing it, how those approaches work and the potential implications of putting a significant transaction into the market.
There is also value earlier in the process.
That human role doesn’t necessarily mean making decisions for the customer. It can mean helping them understand their exposure, showing them the products that are available and explaining economic factors they may wish to consider, while the decision remains firmly with the business.
And there may be value in periodically reviewing that approach as the business changes.
The difference is that human expertise no longer needs to sit between the customer and every routine action.
Prit describes the challenge as giving customers the best of both: a product capable enough to use independently, with a responsive human available when they’re genuinely needed.
What happens to the traditional FX relationship?
Historically, financial services have often relied heavily on relationships.
Someone calls with a market update, or when exchange rates move, and sometimes, someone will call when a transaction is due.
Prit is fairly sceptical that the future of FX needs quite so much of that. For him, the shift is ultimately about where people spend their time:
“I think the future is where it’s embedded. Humans do higher-value work.”
As more routine activity moves into the product, he expects the relationship between finance teams and FX specialists to become more strategic and less dependent on individual sales relationships.
That doesn’t necessarily make the relationship less valuable, but it does change what creates value.
Rather than relying on an individual to facilitate every transaction, the provider has to earn the relationship through the usefulness of the product, the information it provides and the expertise available when the customer actually needs it.
Prit argues that this can create a stronger recurring relationship because it is built around continued value rather than individual sales activity.
The best FX technology might eventually disappear into the background
Prit believes good financial technology should ultimately demand less of the customer’s attention.
That might be the most useful way to think about the future of FX hedging.
The future isn’t necessarily a finance team staring at a more sophisticated trading screen, but a finance team with a clearer understanding of its currency exposure.
Its data is connected.
Its objectives and parameters are established.
Routine processes happen consistently.
AI helps people interrogate information rather than pretending to know where currencies will move next.
And when something unusual or genuinely complex happens, there’s still a role for human expertise.
For Prit, the future of FX hedging is one in which the business stays in control of the decision, while technology takes on more of the administrative and operational work around it.
In time, managing currency exposure may become a more integrated part of a business’s financial systems, while the business continues to oversee its hedging decisions. Whether this happens, and how far it helps, will depend on the business and its exposures.
Perhaps that would be a sign the technology is working as intended.
Make currency management part of the process
Alt21 brings payments, Spot FX and hedging tools into one platform, so finance teams can see and manage their currency exposure in one place. Hedging products carry risks, including binding obligations and, for Options, a non-refundable premium, and are not suitable for every business.
See how Alt21 can help you manage currency exposure.
Alt 21 Limited is authorised and regulated by the Financial Conduct Authority (FRN: 783837). Alt 21 Limited is registered in England and Wales (10723112). Alt 21 Limited is not a bank or an e-money institution; it is an Authorised Payment Institution under the Payment Services Regulations 2017. The registered address is 45 Eagle Street, London WC1R 4FS, United Kingdom. This article has been produced by ALT 21 Limited for information purposes only. It does not constitute financial advice or an offer to sell or the solicitation of an offer to buy any products referenced. Hedging products are not suitable for every business. Before entering into any FX product, you should consider whether it is appropriate for your needs and circumstances. ALT 21 Limited assumes no liability for errors, inaccuracies or omissions. Eligibility criteria and terms and conditions apply to all products and services offered by ALT 21 Limited. Not all applications will be accepted.
