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 a combination of service offering and the amount your recipient will receive
Use this table to compare today’s exchange rates for your transfer among different providers. With a forward contract, you can complete your transfer at the exchange rates quoted below on the date you need to.

Min. Transfer Amount Transfer Speed Online Transfer Fee Rate Amount Received Description CTA Details
GBP 2,000 1 day GBP 0.00 1.094 EUR
5,470
TorFX guarantee to beat any competitor's exchange rate for a transaction (conditions apply).
Get bank-beating exchange rates and no fees when you transfer with TorFX.
Go to site Show details
GBP 5,000 Same day GBP 0.00 1.094 EUR
5,470
Universal Partners FX offers competitive exchange rates and same-day transfers for 100+ currencies. Go to site Show details
GBP 2,500 Same day GBP 0.00 1.094 EUR
5,470
Central FX’s dedicated private client team will guide you through the money transfer process from first call to final payment. Go to site Show details
GBP 1 Same day GBP 0.00 1.099 EUR
5,496
Whatever amount you transfer, XE will not charge you a fee for using their service. Go to site Show details
GBP 3,000 1 day GBP 0.00 1.094 EUR
5,470
Get no fees as a Finder customer when you transfer your money overseas with Global Reach. Go to site Show details
GBP 5,000 1 day GBP 0.00 1.099 EUR
5,495
Take advantage of fee lock-ins and live bookable rates, helping you save up to 85% in hidden bank fees. Go to site Show details
GBP 2,000 1 day GBP 0.00 1.094 EUR
5,470
Make transferring money abroad as simple and safe as possible with bank-beating exchange rates - online, via the app or over the phone. Go to site Show details
GBP 1 1 - 2 days GBP 1.99 1.091 EUR
5,451
Special offers like free transfers and better exchange rates available for new customers.
Quick, affordable transfers around the world with both express and economy options.
Go to site Show details
GBP 5 2 days EUR 3.00 1.1 EUR
5,498
Special offer: Zero fees on your first 10 transfers.
Get bank-beating exchange rates and fast transfer times on 15+ popular currencies.
Go to site Show details
GBP 10 Within an hour GBP 2.00 1.099 EUR
5,494
First two transfers free for new customers.
Instant or 1 hour transfers to over 50 countries, send money directly to bank accounts or over 280,000 cash pickup points.
Go to site Show details
GBP 50 Same day GBP 2.99 1.094 EUR
5,467
Use promo code 3FREE to send your first 3 transfers with no fee. Conditions apply.
An online money transfer service with cash pick-up, bank account to bank account and airtime transfers available.
Go to site Show details

Compare up to 4 providers

Disclaimer: Exchange rates change often. Confirm the total cost with the provider before transferring money.

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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