Paid in US dollars next year , best way to hedge?

[MrCheese]

I’m due to be paid a large amount of dollars in January next year, obviously at the moment this is good as the pound has dropped since I agreed the payment arrangement.

Obviously with brexit there is a wide range of upside and downside risk over the next 6 months and I’d like to try to protect myself from an orderly exit with most likely rise in gbp.

What’s the best way for me to hedge this? For simplicity let’s say the payment is $100k. I’d be prepared to pay something like £5k so that if the pound rallies to say above 1.35 I’d have locked in the current rate of around 1.21. If the pound drops I’d be happy losing the upside if the pound dropped to say 1.1 but ideally I’d like to keep a little upside should the pound absolutely tank to parity with the dollar.

This sounds like an options strategy? Does anyone have any thoughts on this and brokers who might be best to implement for an individual?

[williaa68]

If you know the amount and are happy to commit to exchange, a forward contract will be much cheaper than buying an option. With a forward you are obliged to exchange, with an option you aren’t but you pay a premium. With a forward the cost is really just the spread between the interest rates of the two currencies. Someone like fair FX or tor FX will give you an idea of the forward rates,