A forward contract is a written agreement between 2 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.

Compare exchange rates for different providers
What other risk management options are there?
Frequently asked questions

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.

Example: 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.

Just 6 months later, the same provider offers a €500,000 transfer for £438,000, meaning Ellen's forward contract saved her £14,000.

* This is a fictional, but realistic, example.

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 its 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.

1 - 9 of 9

{"niche":"UKFMT"}

Name	Product	Ratings	Pay by	Receiving options	Fastest transfer	Fee (pay by bank transfer)	Key benefits
OFFER TorFX TorFX	OFFER	Finder rating ★★★★★	Debit card, Bank transfer	Bank account	Within minutes	£0	Get a £50 Amazon voucher for each friend you refer who transfers £5,000 or more. T&Cs apply.	Go to site View details	loading Fetching your data...
Key Currency Key Currency		Not rated yet	Bank transfer	Bank account	24 hours	£0		Go to site View details	loading Fetching your data...
CurrencyTransfer CurrencyTransfer		Not rated yet	Bank transfer	Bank account	24 hours	£0		Go to site View details	loading Fetching your data...
OFFER Currencies Direct Currencies Direct	OFFER	Finder rating ★★★★★	Debit card, Bank transfer	Bank account	24 hours	£0	Get a £50 Amazon voucher for each friend you refer who transfers £5,000 or more. T&Cs apply.	Go to site View details	loading Fetching your data...
OFX OFX		Finder rating ★★★★★	Credit card, Debit card, Bank transfer	Bank account	24 hours	£0		Go to site View details	loading Fetching your data...
TorFX Business TorFX Business		Finder rating ★★★★★	Debit card, Bank transfer	Bank account	Within minutes	£0		Go to site View details	loading Fetching your data...
OFX OFX		Finder rating ★★★★★	Credit card, Debit card, Bank transfer	Bank account	24 hours	£0		Go to site View details	loading Fetching your data...
OFX Business OFX Business		Not rated yet	Credit card, Debit card, Bank transfer	Bank account	24 hours	£0		Go to site View details	loading Fetching your data...
Currencies Direct Business Currencies Direct Business		Finder rating ★★★★★	Debit card, Bank transfer	Bank account	24 hours	£0		Go to site View details	loading Fetching your data...

loading

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

Thank you for your feedback!

Noi Rotstein

Noi Rotstein was a publishing innovation and data analysis manager at Finder. She crunched numbers, wrote pages and created striking visualisations.

International banker’s drafts guide What is a limit order?

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What is a forward contract?

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

What's in this guide?

When are forward contracts used?

Example: Ellen's Holiday Home

What costs are involved in a forward contract?

The pros and cons of forward contracts

Pros

Cons

How to get a forward contract

Compare exchange rates

Explore other risk management options

Frequently asked questions

Noi Rotstein

More guides on Finder

Ask an Expert

What is a forward contract?

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

What's in this guide?

When are forward contracts used?

Example: Ellen's Holiday Home

What costs are involved in a forward contract?

The pros and cons of forward contracts

Pros

Cons

How to get a forward contract

Compare exchange rates

Explore other risk management options

Frequently asked questions

Can I cancel a forward contract ahead of its maturity?

What's the difference between a forward contract and a futures contract?

Are forward contracts safe?

Noi Rotstein

More guides on Finder

Ask an Expert

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