Forward Contracts - Lock-in today's exchange rate

A Forward Contract, sometimes referred to as a forward transaction, forward deal or simply just a ‘forward’, is a type of currency exchange transfer which enables you to reserve today’s exchange rate for future transfers. You may pay a small deposit in order to guarantee an exchange rate to be used on transfers in the future.

A Forward Contract reduces uncertainty when buying an overseas property. Suppose you are buying a villa in Spain for €200,000 but won’t be paying the money for a month or two while the lawyers sort out the legal side. If you are paying for it in euros but are currently holding your money in pounds, any rate changes in the meantime will change the price of the property. Even a 1% loss in the value of the pound – and that can happen in a day – will send your property rising in price by thousands of euros.

A Forward Contract helps you stay in control over the exchange rate, which is the price you’re paying for foreign currency. The exchange rate fluctuates constantly, affected by political and economic events each day. One minute your pound is looking good against the dollar and euro, the next it falls in value and that dream property slips beyond your price range. It makes budgeting large overseas purchases difficult. But a Forward Contract fixes the exchange rate for up to 12 months so you know exactly how much your money will get you. If you know that you will need to make a large payment abroad in the coming year, or a number of payments, a Forward Contract could be the best service for you.

A Currency Forward Contract lets you lock in an exchange rate for up to 12 months. You might use one when buying a property abroad to stop fluctuating exchange rates pushing the final cost above your budget. It allows you to reserve foreign currency when you feel the currency you have is strong, or in danger of weakening.

With the contract signed, and your 10% deposit paid, no matter how the currency values fluctuate, you will always be able to trade at the agreed rate. You may also use one if you are making a regular payment every month; for an overseas mortgage perhaps, or stage payments on a new-build. Without a Forward Contract, a monthly payment of €10,000 will vary by hundreds and even thousands of pounds each time you make it.

Forward Contracts can also be combined with one of our Regular Payment Plans. If you need to make payments at regular intervals you can use a Forward Contract to lock in a rate for these payments for the year ahead. You might want to set up a plan to make regular pension payments or to cover an overseas mortgage.

By fixing the cost of your regular overseas payments, you can budget for the amounts coming in and out of your account, ensuring you’re never left short. Combining a Forward Contract with one of our Regular Payment Plans removes hassle from these transfers and set up is simple. Your trader will help you lock in a satisfactory rate, you outline the dates the payments need to be made and then set up a standing order to cover them. Your payments will then be managed on your behalf for the next 12 months at the rate you’ve agreed. This combination of services is the best way to effectively manage your regular payments to help you budget, and to give you complete peace of mind.

Forward Contracts work well for many of our clients. For example, those making one-off payments who want to avoid currency risk and be certain on their currency prices. Forward Contracts are also great for those who feel that rates are at a good level, or that they could weaken significantly, and they want to take advantage of that favourable rate for a year.

There are pros and cons for using a Forward Contract. Currencies can move in both directions, if the source currency strengthens after agreeing the contracting rate you are still legally obliged to trade at that level. If you only need to make a one-off payment, a Spot Contract works well. Your trader will secure you the best exchange rate possible on the date you need to make the transfer. As there is no time delay, the currency risk is much less and a Forward Contract unnecessary. However, if you are committed to buying and have a set budget, a Forward Contract will work well.