Market turmoil is exposing FX risk - 5 ways to protect profits

Reminiscent of last year’s events, the re-emergence global tariff threats, has been a reminder of how quickly shocks can feed through into currency markets. More recently, tensions in the Middle East have reinforced the same point, with geopolitical headlines continuing to move FX in both directions as investors reassess risk and capital flows adjust.

As our Chief Trading Officer, Nick Wood observes, FX markets are currently torn between competing narratives, particularly around shifting interest rate expectations, divergence between commodity importers and exporters, safe haven flows, and broader risk-off dynamics. For investors, the direction of the US dollar will hinge on clarity in the Middle East, where headlines continue to send mixed and often conflicting signals.

For corporates and fund managers, that uncertainty shows up quickly. Moves happen fast, often before there’s time to react, and exposure that looked manageable can shift within days.

Trying to call the market in that environment is difficult, so the focus shifts to control instead — how exposure is hedged, how effectively trades are executed and how cash is managed. The following five steps focus on where strategies can be tightened in in more volatile conditions.

 

1. Hedge your FX risk

Our 2026 Global FX Report shows that 12% of corporates are still choosing to leave FX exposure unhedged, but that’s becoming harder to justify given how markets have been moving over the past year. In Q4 2025 alone, 8 in 10 firms reported losses due to unhedged FX risk, averaging around £6.71m in the UK and $9.85m in the US. These losses have started to shift how the currency exposure is viewed amongst non-hedgers, with 6 in 10 now considering hedging given current market conditions.

Among fund managers, 87% now hedge their FX exposure, rising to 96% in Europe where sensitivity to currency volatility tends to be higher. Among those not currently hedging, 61% say they are now considering it, as 77% reported losses from unhedged FX risk in 2025, rising to 95% in the UK and 100% in Europe.

For firms still unhedged, putting a basic hedging strategy in place is a straightforward way to protect cash flows and limit the impact of market shocks.

 

2. Review whether your hedge coverage and duration are sufficient

As FX moves have hit bottom lines over the past year, it’s clear why the conversation for many is shifting from whether to hedge to how much risk you’re willing to live with.

Even with increased levels of hedging, most firms are still only part of the way there. On average, corporates are hedging 52% of their exposure and only around 5.5 months out. That leaves a fair amount of risk sitting unprotected, or only covered in the very short term, which becomes harder to justify when volatility isn’t going away.

You can see that starting to change as 62% of corporates are planning to push their hedging further out. Fund managers are moving in a similar direction, but with a slightly different focus. While 45% are looking to extend how far out they hedge, 47% are looking to increase how much they hedge. In other words, they’re trying to close the gap, not just stretch it.

Reviewing whether your current hedge coverage and duration are fit for purpose is a practical first step in reducing currency exposure and bringing greater stability to cash flows.  As one of the key findings from the report highlight, FX volatility is being increasingly driven by geopolitics and macro uncertainty rather than predictable economic cycles. These losses from currency volatility are strengthening the case to prioritise protection.

 

3. Know exactly what your FX exposure is costing you

As more firms hedge their FX exposure, attention is naturally turning to what that protection actually costs.

For many, that’s still not entirely clear as 39% of fund managers highlight cost transparency as their top FX priority (rising to 41% in the UK), whilst a quarter of corporates struggle to get comparable quotes.

Part of the challenge is that FX costs rarely sit in one place, and few providers offer a fixed-fee model. Beyond the headline spread, there are mark-ups, tailored pricing, slippage, as well as less visible charges such as settlement or processing fees. These can vary meaningfully between providers and aren’t always easy to compare - particularly when counterparties are limited and independent benchmarks are lacking.

At the same time, FX costs themselves are rising. On average, the cost of hedging has increased by over 60% for both corporates and fund managers, with 72% reporting higher rates and fees over the past year. That leaves finance teams weighing the cost of hedging against the need for protection.

For those struggling with a lack of visibility, transaction cost analysis (TCA) can help build a clearer picture of FX costs over time by evaluating trade data to show where costs are coming from, how pricing compares to the mid-market rate, and whether trades are being executed as efficiently as they could be.

 

4. Outsource where it adds value

FX has quietly become one of the more time consuming parts a finance team has to manage. Pricing, execution quality, counterparty relationships, compliance and that's before you factor in volatile markets and tightening credit conditions.

Time spent on the mechanics of FX is time not spent on forecasting, planning, or the decisions that actually move the business forward. That’s why 34% of fund managers are now outsourcing FX operations to enable them to focus on core business activities. In fact, every fund manager surveyed by MillTech outsources at least part of their FX processes, with scalability and flexibility (36%) being the most common driver.

Almost all corporates are now using external FX support in some form, reflecting a similar shift. For 30%, the main driver is access to specialist expertise, with lack of internal FX capability the most commonly cited challenge (29%). FX isn’t always a core focus, and building that level of expertise in-house, particularly across multiple markets can be hard to justify.

As complexity increases across pricing and effective execution, reviewing the external support available can become the more practical option, whether that’s support with achieving demonstrable best execution, access to broader liquidity providers, or simply better visibility over pricing and performance.

 

5. Automate where FX processes slow you down

A lot of FX workflows are still more manual than they need to be, with 45% of fund managers still using email to instruct trades. A further 27% point to challenges around fragmented service provision and securing credit lines, which helps to explain why 39% are now looking at automating price discovery.

Price discovery can be difficult when liquidity is spread across multiple providers, often on different platforms and with different pricing structures, making it hard to compare rates on a consistent, like-for-like basis. Automating that process helps standardise and aggregate pricing, allowing firms to easily compare rates without relying on manual requests or back-and-forth.

The same trend is now visible among corporates, with all now exploring automation in some form, a third focusing on trade execution while CFOs and treasurers in the UK place greater emphasis on reporting (41% and 42% respectively).

Automating trade execution allows trades to be executed via API or FIX connections in line with predefined parameters, rather than relying on individual inputs each time. On the reporting side, automation ensures reporting is generated and distributed automatically to administrators, custodians, PMS/TMS systems and regulators, helping maintain consistency and meet compliance requirements without adding manual work.

Looking ahead, 26% of corporates and 27% of fund managers see digital, multi-bank platforms with built-in automation as the direction of travel, reflecting a broader shift towards more integrated and less manual FX workflows.

Reviewing where manual steps still sit in your FX process, particularly around pricing, execution and reporting, is a straightforward place to start.

 

Please refer to our Research Disclosure Page for more information on the data referred to in the above.