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Exposure

FX exposure is the risk that exchange rate movements will affect the value of a future payment or receivable. Any time a business has a commitment in a currency different from its own, it carries exposure. The gap between when the commitment is made and when the payment occurs is the risk window — during that time, the rate can move in either direction. For example, a UK travel platform that sells holidays priced in GBP but pays hotel suppliers in USD is exposed to GBP/USD movements. If the rate moves unfavorably between booking and payment, the platform’s margin shrinks or disappears entirely.

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What Is a Hedge

A hedge eliminates FX exposure by locking a rate today for a future exchange of currencies. Instead of hoping the market stays favorable, the business knows exactly what rate it will get at settlement. In FX terms, a hedge is a forward contract — an agreement to exchange currencies at a predetermined rate on a future date. “Hedge” is the business term (what you’re doing — protecting against risk), “forward” is the financial instrument (how it’s done). Key components:
  • Exposure — the underlying commercial obligation
  • Notional — the amount being hedged
  • Maturity — the date when settlement occurs
  • Settlement — exchange of currencies or offset of the position

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How forward pricing works

A forward rate is not a prediction of where the market will be. It is calculated from two components:
  • Spot rate — the current market exchange rate
  • Forward points — an adjustment derived from the interest rate differential between the two currencies over the hedge period
The forward points are determined by a forward curve, which reflects how interest rate differentials change across different maturities. A longer hedge period generally means larger forward points (positive or negative depending on the currency pair).

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Flexible Hedges

The hedges described so far lock a rate for a single exchange at maturity. Drawing part of one down earlier is a separate event with its own pricing, calculated from the forward points prevailing at the time it is taken. A flexible hedge locks one rate at creation and keeps it for every drawdown against that hedge. You can draw down as much as you like, as many times as you like, up to the hedge’s full amount, and every drawdown settles at the rate the hedge was booked at, however late in the hedge’s life you take it. This gives certainty across the whole life of the hedge rather than at a single point in it. You know what every payment out of that hedge will cost, from the day you book it. A flexible hedge also reports its opening terms alongside its current ones. The original* fields record the amounts, rate and due date it was booked at and never change, while the live fields show what is left to draw. Flexible hedging is enabled per partner.

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Full Exposure Hedging

With traditional FX providers, partners must estimate their own hedging needs — accounting for cancellations, net-outs, and other variables — and only hedge what they’re confident will materialize. If they get it wrong, they’re either exposed or paying for unnecessary hedges. Grain’s core hedging model allows partners to hedge their full reported exposure. Grain’s pricing engine analyzes the partner’s historical patterns — cancellations, net-outs, timing, and other behavioral signals — and factors that into the hedge pricing. Partners get full coverage at a cost-effective price, without managing the forecasting themselves. This capability is configured per partner during onboarding based on data availability and business fit.

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Conversion Transactions vs. Hedges

Grain offers two ways to exchange currencies:
  • Conversion — an immediate currency conversion at the current market rate. Settlement typically occurs on the same day or within T+2. Use spots when you need to convert funds now with no future rate risk.
  • Hedge (Forward) — locks a rate for a future date, removing uncertainty about what the exchange rate will be at settlement. Use hedges when there is a time gap between commitment and payment.
The choice depends on timing. If the payment is immediate, use a spot. If the payment is in the future and the business wants certainty on the rate, use a hedge.

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Grain Rates vs Grain Quotes

Rates Spot rates used for display and analytics. Not executable. These are mid-market reference prices. Quotes The actual prices you trade on. Available for both spots and hedges. Quotes include buy/sell spread, markup, timestamp, and expiration. A quote must be accepted before it expires. Clients should not compare executable quotes to Google FX, which shows mid-market rates.

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Collateral & Variation Margin

When a hedge is created, the market may move against the locked rate before settlement. Collateral and variation margin are mechanisms to manage this counterparty risk.
  • Initial Collateral — an upfront deposit required when the hedge is created, typically a percentage of the notional amount. It acts as a security buffer.
  • Variation Margin — additional collateral that may be called if the market moves significantly against the hedge position (mark-to-market loss exceeds a threshold).
Grain offers two models:
  • Collateralized — the partner posts initial collateral and may be subject to variation margin calls. Standard in traditional FX.
  • Non-collateralized — no upfront deposit or margin calls required. Grain assumes the counterparty risk on behalf of the partner, enabling a frictionless integration with no capital lockup.
How Grain manages risk: across both models, Grain uses proprietary AI models to optimize hedging execution — ensuring cost-effective risk management while providing partners with full-exposure coverage. Initial collateral is posted once at creation against the full amount. Each drawdown releases a proportional share of the collateral still held and applies it toward funding that drawdown, so collateral falls in step with the amount left outstanding.