Forward contracts: Fixing your rate in advance
Whenever you convert money from one currency to another, there’s a risk that the rates of exchange will fluctuate dramatically. Sometimes this can work in your favour. But it could also make enough of a difference to ruin your plans.
A forward contract lets you fix the exchange rates for up to three whole years in advance. You’ll know exactly how much you’ll get when you transfer your money. So budgeting is simpler, and a whole lot of stress is removed.
You can watch our 60 second video here to learn more about forward contracts:
How it works:
We agree the rate at which the money will transfer in the future. We take a deposit from you, and then when the transaction happens, you pay the balance at the pre-agreed rate.
This can be ideal if you’re not going to be making payment immediately – for example, if you’ve agreed to buy a house, but the completion date is a few weeks or months away. It lets you fix the exchange rate, so you know exactly what the house will cost on the day.
Paying a deposit
When we set up a forward contract, we ask you for a deposit. This is industry-standard. It covers the risk we take in agreeing to buy currency at a rate determined in advance.
This is a guide to the deposit you may be asked for. Call us and we’ll discuss your particular circumstances with you.
| Time Period | Deposit |
| Up to one month in advance | 5% |
| Up to two months in advance | 8% |
| Up to one year in advance | 10% |
| Up to two years in advance | 15% |
| Up to three years in advance | 15% |
Depending on currency fluctuations, we might need to increase your deposit over the time period of your contract in order to maintain the agreed deposit level. This is called a ‘margin call’.
Flexibility to change the settlement date
You can make or receive payments early – or move the date further into the future. This can be a handy way to handle foreign exchange risk if you don’t know when exactly you’ll need to pay, but you still want to fix the rate.
Flexibility to make staggered payments
A flexible forward contract allows you to fix the exchange rates on a lump sum, and then make staggered, smaller payments from it, all at the same fixed exchange rate. It’s ideal if you want to make installment payments on an overseas property, or pay for building work to an overseas home. You can do it safe in the knowledge that the final costs won’t escalate above what you’ve been quoted because of exchange rates.
Forward contract: How it works when you're buying
In January 2010, Mrs Connor agreed to buy a property in Florida. The sale was due to complete in April, when the payment of $410,000 had to be paid.
She was concerned that the exchange rate might move against her during those four months, and decided to fix the exchange rate in advance. It let her know exactly how much the property would cost on the day.
In January she fixed a rate of 1.6220 to buy €410,000, and paid us a 10% deposit.
Between January and April the exchange rate moved between 1.6450 and 1.5120. On the day her payment was due the rate was 1.5190.
If she had waited until April and exchanged her money at the prevailing rate, the property would have cost an extra £17,140.07.
| US dollars | Sterling | |
| Cost of property in January with forward contract | $410,000 | £252,774.35 |
| Cost of property in April without a forward contract | $410,000 | £271,164.02 |
| Difference / Saving | £17,140.07 |
The rate could have improved by April too, in which case the property could have been less expensive. But Mrs Connor had budgeted to buy the property at a rate no worse than 1.60 – and fixing the rate in advance provided her peace of mind.
Call us on 0800 783 6022, or +44 20 7801 9080. Alternatively arrange for us to call you back.
