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Why small businesses shouldn't ignore the trading of foreign currency

If you're familiar with the economies of Venezuela and Nigeria, you probably already know that these two countries are currently dealing with an economic crisis. Both countries have been greatly affected by the crash in the crude oil market.
For instance, Nigeria depends on crude oil export for about 80% of its revenues. With crude oil prices down by over 50% since the middle of 2014, Nigeria has consequently seen its revenues drop a great deal.

Venezuela has also seen its revenue drop hugely – perhaps it feels the crash the most of the top oil producers – due to the oil market debacle. As a result, the value of its currency has dropped, just as it has in Nigeria. Both countries are dealing with hyperinflation. In fact, CNN reported in January that Venezuela has dealing with 141% inflation.

When countries go through times like this, both the masses and companies suffer. Issues like this cause companies to default and lose revenue. This even gets as bad as driving companies into bankruptcy. For instance, Coca-Cola had to stop production in Venezuela. Some airlines have had to stop flying to Nigeria. Yes, these are not bankruptcy cases, but it’s an indication that smaller companies could have gone bankrupt because of the unconducive nature of the economies.

And the truth is any country can find itself in economic mess. Therefore, the ongoing economic issues in Venezuela and Nigeria are a reminder to businesses, especially small businesses that hedging your business against turbulent economies is important.

There are scads of ways to do that, but here we’ll be focusing on why you should consider using forex trading to protect your business as well as standing a step ahead of competitors.

Why small businesses should consider forex trading

1. Increase capital position

Even when there isn’t economic crisis, the problem of raising enough capital to grow is of one of the biggest challenges small businesses face. That gets worse in economic crisis. If done properly, forex trading could offer a route to increasing the capital position of your business.

Let’s get this right. This won’t be a way for your business to make a fortune overnight. To do this, you have to take the long-term view. And you have to be prepared to lose some or all of your investment. Because, let’s face it, forex comes with high risk.

But, as stated earlier, when done right, it could be a reliable source of capital for your business. Here’s how you should go about it.

If your business is big enough to hire employees, you should definitely consider creating a capital management department. One of the functions of this department will be to trade forex. You’d want to have at least one person in that department who has expertise in forex trading. That person will be responsible for trading. Don’t go about seeking “experts” that will promise your business a fortune overnight. You should be seeking out those who understand the value of money and are actually conservative. This kind of experts won’t take unnecessary risk with your money. In addition, when you find the right expert, you should consider having bonus package in place to have the expert truly engaged. That’s, of course, in addition to their salary.

If your business can’t afford to hire a forex expert, however, you should definitely go learn forex trading thoroughly from reputable professionals.

Second, you should have a foreign exchange trading regime in place. In it, you would define your goals and trading disciplines. This will guide you in making the right trade move and afford overly speculative moves.

You should also define how funds would be apportioned for trading. That is, you should decide if you‘d be investing a portion of your quarterly profit, say a percent of it, into forex. This will help you not get overwhelmed by the challenge of getting funds to trade.

When done in such a planned and disciplined way, you can be sure of some degree of success over the long-term, with emphasis on long-term. You can get information about forex trading on many forex dedicated sites, but ETX Capital seems to have some simplified yet educational information about getting started

2. Deal with inflation

In the discussion about Venezuela, reference was made to how the country is dealing will uncontrollable hyperinflation. By implication, most companies would have seen their total expenses skyrocket, without a proportional increase in bottom-line. This is enough to send businesses into bankruptcy.

However, by trading forex, which most likely means your business have some foreign currency reserve. This means that you can always make purchases in foreign currencies without exposing your business to the country’s devalued local currency. This automatically improves the chances that your business would survive an economic downturn.

3. Potentially improves your creditworthiness – and hence, value of your business

It’s not spoken of quite often, but having a forex trading account means that you have some sort of foreign currencies. If your business ever needs to take a loan, having extra funds in your trading account will do a bit to gain you the creditors’ trust.

In addition, if you are lucky enough to have a bigger competitor offer to acquire your business, your forex account, which is set up in the manner described here, will improve your liquidity, which will go some way to get you good terms.

28 Jun 2016 10:16

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About Boris Dzhingarov

Boris Dzhingarov graduated UNWE with a major in marketing. He is the CEO of ESBO ltd brand mentioning agency. He writes for several online sites such as Tech.co, Semrush.com, Tweakyourbiz.com, Socialnomics.net. Boris is the founder of MonetaryLibrary.com and cryptoext.com.




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