What is a forward contract?

Lock in a guaranteed exchange rate for a future transfer with a forward contract.

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A forward contract is a written agreement between two parties to make an exchange at a predetermined price on a specified date. When transferring money abroad, you can enter into a forward contract to carry out your transaction in the future, at the current exchange rate. At the expiry date of the contract, the transfer must be carried out. Both sides of the deal have a legal obligation to fulfil the contract.

When are forward contracts used?

Forward contracts are useful when you know you have a payment to make abroad at a known time in the future – particularly a large one. For example, you might be buying a property overseas, or even purchasing something smaller such as a boat. Forward contracts are also commonly used by businesses.

Ellen's Holiday Home

Having been there many times, Ellen decides to buy a holiday home in the south of France. She finds one that suits her perfectly, costing €500,000. Her usual international money transfer provider offers to complete this payment for £424,000. Concerned that the instability of the pound will cause this price to increase in the coming months, Ellen agrees on a forward contract with the supplier, to pay the quoted amount when she needs to.

Six months later, the same provider offers a €500,000 transfer for £438,000, meaning Ellen’s forward contract saved her £14,000.

What costs are involved in a forward contract?

Usually, a forward contract will cost no more than a same-day transfer. Generally you’ll pay a fraction of the transfer amount as a deposit the day you make the contract.

The pros and cons of forward contracts

Pros

  • Security. With a forward contract, you can eliminate all the uncertainty that comes with making a future overseas payment.
  • No additional fee. Usually, the price of a forward contract will be the same as a normal (spot) transfer.
  • Potential to save. If the value of your target currency increases, a forward contract could save you a significant amount of money.

Cons

  • Obligation. Once you’ve entered into a forward contract, you must fulfil it at its expiry.
  • Potential to lose. If your target currency becomes cheaper after you make the forward contract, you’ll have no choice but to pay the higher amount.

How to get a forward contract

Most international money transfer providers offer forward contracts. When planning your transfer, it’s important to first compare different providers and decide which best suits your needs. You can compare today’s exchange rates for some foreign exchange specialists using the table below.

Once you have decided on a company, visit their website and enquire about forward contracts there. The exact procedure from that point will depend on the provider.

Compare exchange rates

Table: sorted by promoted deals first
Our table below lets you compare services you can use to send money abroad. Compare fees, exchange rates and discounts from different money transfer services, and when you have made your choice, click Go to site.
Name Product Filter Values Fastest Transfer Speed Fees (Pay by Bank Transfer) Learn More
Wise (TransferWise)
4 hours
From £3.75

View details
Wise uses the mid-market rate and transparent fees to help you send money in 45+ currencies.
TorFX
24 hours
£0

View details
TorFX sends money overseas in 30+ currencies, with competitive rates for transfer amounts over $2,000.
Central FX
24 hours
£0

View details
Central FX's dedicated team will guide you or your business from first call to final payment.
Currencies Direct
24 hours
£0

View details
CurrenciesDirect makes transferring money abroad simple with bank-beating exchange rates.
CurrencyTransfer
24 hours
£0

View details
CurrencyTransfer lets you shop around for the best exchange rate on its online marketplace.
XE Money Transfer
Within minutes
£2
SPECIAL OFFER ✓ £25 Amazon voucher when you refer a friend

View details
XE has fast transfers with low fees and a range of foreign currency tools.
Wise (TransferWise)
4 hours
From £3.75

View details
Wise uses the mid-market rate and transparent fees to help you send money in 45+ currencies.
CurrencyFair
24 hours
€3
SPECIAL OFFER ✓ Zero fees on your first 10 transfers

View details
CurrencyFair has bank-beating exchange rates and fast transfer times on 15+ popular currencies.
Azimo
Within minutes
From £0.99
SPECIAL OFFER ✓ First two transfers free for new customers.

View details
Azimo sends money directly to a bank account or over 280,000 cash pick-up points. It also has fast transfers to 50+ countries.
Remitly
Within minutes
From £1.49
SPECIAL OFFER ✓ Free transfers and better exchange rates for new customers

View details
Remitly has quick, affordable transfers around the world, with both express and economy options.
VertoFX Business
24 hours
£0

View details
Special offer: New customers get $100 trade credit after their first transaction. T&Cs apply.
VertoFX sends money via bank transfer at competitive rates and fees in 35+ currencies.
Wise (TransferWise) Business
2 days
From £3.75

View details
Wise uses the mid-market rate and transparent fees to help you send money in 45+ currencies.
TorFX Business
24 hours
£0

View details
TorFX sends money overseas in 30+ currencies, with competitive rates for transfer amounts over $2,000.
Currencies Direct Business
24 hours
£0
SPECIAL OFFER ✓ https://www.currenciesdirect.com/en/info/refer-a-friend

View details
CurrenciesDirect makes transferring money abroad simple with bank-beating exchange rates.
CurrencyFair Business
24 hours
€3

View details
Special offer: Zero fees on your first 10 transfers.
CurrencyFair has bank-beating exchange rates and fast transfer times on 15+ popular currencies.
WorldFirst Business
WorldFirst Business
24 hours
£0

View details
WorldFirst sends 60+ currencies at competitive rates with no fees. If you find a better eligible quote, WorldFirst will beat it.
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Compare up to 4 providers

Explore other risk management options

Forward contracts are one of many forms of hedging. Other options that allow you to lock in exchange rates include:

  • Limit orders. Set a target exchange rate at which to carry out your transfer.
  • Stop-loss orders. Define a minimum exchange rate, and your transfer will happen before it falls below this.

Some providers also offer options contracts. These are very similar to forward contracts, only at their maturity you aren’t obligated to go through with the transaction. Entering into one of these will cost you an additional fee. Contact your provider to see if this hedging solution is available to you.

What is hedging?

The investment community uses “hedging” to describe protecting or lowering your risk of loss on a trade. There are a few tools you can use to hedge your risk in the foreign exchange and currency transfer market.

Frequently asked questions

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