Forward Contracts: Fixing your Exchange Rate 

When converting money from one currency to another, there’s always a risk that the rates of exchange will fluctuate wildly. Sometimes, this can work in your favour but it can also move against you and ruin your budget.

A Forward Contract allows you to fix your exchange rates for up to two years in advance. This means you will know exactly how much you'll get when converting from one currency to other and can help keep your budget intact. 

To enter into a Forward Contract, you need to pay a deposit. This is standard practice and the amount of deposit you pay initially will vary depending mainly on the length of the contract and the currencies you are exchanging. 

How a Forward Contract works: 

FC Exchange will agree the rate with you at which the money will transfer at in the future. You pay us a deposit, and when the transaction then happens, you pay the balance at the pre-agreed rate. This means your rate is fixed and will not fluctuate as the market does. 

Forward Contracts can be ideal if you do not need to make payment immediately – for example, if you have agreed to buy a house, but the completion date is a few weeks or months away. It allows you to fix the exchange rate, so you know exactly what the property will cost on the day. This protection can allow peace of mind as you have committed to a house purchase but need to know the price you are paying.

In exceptional circumstances if required, in addition to letting you fix the exchange rate, a forward contract also lets you alter the settlement date. You could ‘drawdown’ early or ‘roll’ the contract. There may be an additional cost associated with this which is why it is best to spend some time thinking about the date you book your contract to, to avoid unnecessary cost later down the line. 

When we set up a Forward Contract for you, we will ask you for a deposit. It is taken to cover the risk we take when agreeing to buy your currency at a rate determined in advance. We normally request a 10% deposit but you can call us and we will discuss your particular requirements with you.  

Depending on currency exchange rate fluctuations, we may need to increase your deposit i.e. request additional funds from you over the time period of your contract in order to maintain the agreed deposit level, this is called a ‘margin call’.