If you are planning to move money internationally in the future — for example, to buy a property abroad or pay school fees — you might want to lock in today’s exchange rate. That is where a forward FX contract comes in.
A forward contract allows you to agree on an exchange rate today for a currency transfer that will happen at a later date. It gives you certainty and protects you from potential changes in the market.
How It Works
A forward FX contract is a private agreement between you and a currency provider. You agree to buy or sell a specific amount of currency at a fixed rate, with the transfer taking place on a future date of your choosing.
This is useful if you want to:
- Fix the cost of a future purchase or payment in another currency
- Avoid surprises from exchange rate movements
- Plan your finances with more confidence
Common Uses
- Buying or selling overseas property
- Paying for international school or university fees
- Sending large gifts or inheritances abroad
- Hedging the value of overseas income or assets
- Managing the cost of future business expenses in foreign currencies
Forwards vs. Futures
You may have heard of futures contracts. These are similar in concept but are traded on exchanges and come in fixed sizes and dates. They are typically used by financial institutions and are not flexible for individuals.
Forward contracts, on the other hand, are tailored to your needs. You can choose the amount, the date, and the currency pair. That flexibility makes them ideal for private clients.
Margin and Deposits
A forward contract is a “buy now, pay later” arrangement. You do not need to pay the full amount upfront. However, you may be asked to provide a deposit, known as margin, as a form of security. Sometimes, a client might be asked to pay more deposit at a later date, this is known as a "margin call" and this happens when the market moves by an extreme amount during the life of a forward contract.
Need Help?
At Oku Markets, we believe in transparency and education. We are here to help you understand your options and make informed decisions.
Contact us at info@okumarkets.com or call 0203 838 0250 for a conversation about your currency needs.
Summary
A forward FX contract lets you lock in an exchange rate today for a currency transfer in the future. It is a flexible and practical way to manage currency risk, especially for large or planned international payments. Whether you are buying a home abroad or sending money to family, a forward contract can give you peace of mind.
Frequently Asked Questions
1. How long can a forward FX contract last?
Forward contracts can be arranged for a few days or up to several years, depending on your needs. At Oku Markets, we can offer terms up to five years.
2. What is the difference between a forward and a swap?
A forward is a single agreement to exchange currencies on a future date. A swap involves two linked transactions — one now and one later — often used by institutions.
3. Can you give an example of a forward contract?
A UK buyer agrees to purchase a property in Spain for €500,000. They lock in the exchange rate today for settlement in three months, protecting against a weaker pound.
4. Are forward contracts risky?
They reduce the risk of currency fluctuations but do carry some financial obligations. It is important to understand the terms and your responsibilities before entering into one.
5. Why would someone use a forward contract?
To protect against exchange rate changes, especially when planning large or time-sensitive international payments.
