A forward contract is a foreign exchange agreement to buy one currency by selling another on a specified date within the next 12 months at a price agreed on now, known as the forward rate.
The forward rate is the exchange rate you agree on today to transfer your currency later. It can be calculated based on the spot rate and adjusted to take into account other factors like the time until transfer and which currencies you’re exchanging. The forward rate you agree on today doesn’t have to be the same as the rate on the day the exchange actually happens – hence the forward bit.
Forward contracts reduce your exposure to currency fluctuations and exchange rate changes. By locking in rates now, you can plan ahead with certainty knowing what your costs will be for buying and selling overseas – particularly helpful for small businesses who need to keep cash flow predictable and easy to manage.
There is, of course, a downside. By locking in a forward rate you’re committed to it, even if the exchange rate changes in your favour meaning you could have saved money if you’d opted for a spot contract at the time you needed to make the exchange instead. To counter this, you could opt to use a forward contract for a portion of your total foreign exchange rather than all of it.
We’ll advise you on the best type of transfer for your situation and give you a far better rate than the banks, who charge big margins on the exchange rate that can cost you dear.
Clear Currency takes a different approach, bypassing typical fees to offer more competitive rates and less hassle, so you get your currency quickly and with the minimum of fuss. Try us today.
A forward contract lets you fix a price today for a foreign exchange in the future.
The forward rate is the exchange rate you set for an exchange that will happen on an agreed date in the next 12 months.
The settlement date is the day you get your currency.
You may see it called a forward FX trade (the FX means foreign exchange) or forward transfer.
Currency exchange doesn’t have to be stressful or expensive. Our experienced and dedicated team is here to help you keep more of the money you transfer.
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