Exchange rate risk: convert now or lock in a rate?

Exchange rate risk is the chance that a currency moves against your business between the day you agree a cost and the day you pay it. With a Verto multi-currency wallet, you can manage it three ways: hold the currency, convert now with Exchange Now, or lock a rate for 24 hours with Exchange Deal. Here is how each works, with an illustrative example and a simple policy you can adopt.

What is exchange rate risk for a business?

Exchange rate risk arises whenever you earn in one currency and pay in another. If a supplier invoices you in naira and your money is in GBP, the amount you pay depends on the rate on the day you convert. Rates move both ways, so the same invoice can cost more or less depending on when you act.

The risk is not only the movement itself. It is also not knowing the cost in advance, which makes budgets and prices harder to set. Exchange rate volatility is higher for some currencies than others, which is why businesses that trade with emerging markets tend to watch it closely.

How does exchange rate volatility affect a business wallet?

A multi-currency wallet gives you control over timing. On Verto, each currency has its own wallet, so money you receive stays in the currency it arrived in until you choose to convert it. You are not forced to accept the rate on the day the money lands.

That control only helps if you use it deliberately. The next sections show the three choices, then a worked example.

Example: a UK importer with a naira invoice

This is a made-up example, not a real customer. Imagine a UK homeware business that holds GBP in its Verto wallet. A supplier in Lagos sends an invoice in naira, due in three weeks.

The finance lead has three worries. Converting today fixes the cost now. Waiting could cost less or more. And if the supplier wants payment on a specific day, the lead needs to know the amount in advance. The options below map to those worries.

Currency risk management in a wallet: three options

Option one: hold the currency you have

Holding is the default. Your GBP sits in its own wallet, and you convert only when you need naira. You can open several wallets in the same currency, for example "Suppliers GBP" and "Tax GBP", to keep funds organised by purpose.

Holding suits a business whose costs and income are in the same currency, or one that doesn't need the foreign currency yet. The trade-off is that you carry the risk that the rate moves before you convert.

Option two: convert now with Exchange Now

Exchange Now converts between your wallets at a live rate, 24/7, 365 days a year. You see the rate, confirm the conversion and the new balance appears in your wallet. You can convert directly between currencies in a single trade.

In the example, the finance lead could convert the full invoice amount today and pay the supplier from the naira wallet when due. The cost is fixed from that moment. The trade-off is that if the rate improves over the next three weeks, the business doesn't benefit.

Option three: lock a rate with Exchange Deal

Exchange Deal lets you lock in a rate for 24 hours. It helps when you want certainty before you have the funds in place, for example when a payment is due and the money is still on its way from a customer.

In the example, if the GBP is expected in the wallet tomorrow, the lead can agree the rate today and fund the deal within the 24 hours. The trade-off is the short window. A locked rate is for a decision you are ready to make now, not a way to wait for a better price.

How do the three options compare?

What does a 24-hour lock not do?

Exchange Deal holds a rate for 24 hours before your funds arrive. It is a short-term lock, not a long-term protection tool, and it does not predict where rates will go. If you need cover for months rather than a day, a 24-hour lock is not designed for that.

Where does Auto Exchange fit?

Auto Exchange is different from a lock. You set a target rate and an amount, and Verto converts automatically once the rate reaches your target, even if you are not logged in. You choose how long the order stays valid, either until you cancel it or the target is met, or until a fixed date. Use it when you want a conversion to happen at a rate you have chosen without watching the market.

What does it cost to convert?

FX on Verto is priced by currency band: 0.4% to 0.6% for developed-market currencies depending on your plan, and up to 2% for exotic currencies. Your plan depends on where your company is registered, so check Verto's pricing page for your country. Transfers between Verto wallets are free.

How do you build a simple currency risk policy?

A short written policy beats deciding under pressure each time. Four rules cover most businesses:

1. Hold what you will spend in the same currency. Keep income in the currency you receive it in until a cost needs another currency.

2. Convert on a schedule for predictable costs. For payroll or monthly suppliers, use Exchange Now on a set day.

3. Use Exchange Deal for a known payment. Agree the rate once the payment is confirmed and funds are close.

4. Decide who can convert. Verto lets you give team members read-only access to view balances, or read-and-write access to add wallets and manage money.

Which mistakes should you avoid?

Most timing problems come from a handful of habits:

• Converting everything the day money lands. You accept whatever the rate is that day, even when the money won't be needed for weeks.

• Waiting for a better rate on a fixed deadline. If a payment has a due date, a delay can leave you converting in a hurry.

• Locking a rate before the payment is confirmed. Exchange Deal is valid for 24 hours, so agree it when you are ready to fund it.

• Mixing purposes in one wallet. When supplier money, tax money and payroll sit together, it is hard to see what is free to convert.

Who holds your money?

Verto is authorised by the UK Financial Conduct Authority as an Electronic Money Institution rather than a bank. Customer funds are held in safeguarded accounts, separate from Verto's own money, and the FCA explains how safeguarding works for e-money institutions. The FCA also sets out what to check when using a payment service provider, which is a useful list to run through before moving large balances.