Fix your rate and future proof your plans with a forward contract
What's a forward contract?
A forward contract is a hedging product that allows you to secure an exchange rate over a set period of time on a predetermined volume of currency.
With WorldFirst, a forward contract can be entered to facilitate payments for identifiable goods, services or direct investment (making a capital investment in an enterprise to obtain a lasting interest in it).
You will be able to lock in an exchange rate for up to 24 months.
Why hedge using a forward contract?
Locking in an exchange rate with a forward contract means you know exactly what exchange rate you’re getting, for a set time. This helps you predict cash flow so you can be smarter, more accurate and more competitive with your forward planning.
What can happen if I don’t hedge?
Without locking in a fixed rate (hedging), adverse market fluctuations could lead to losses for your business and result in increased prices for your products and services.
Five things to consider when hedging
During a forward contract, if the market rates move against you, you won’t lose out because your rate is secured. However, if rates move significantly against you, you may need to pay a margin call.
You won’t benefit if a currency moves in your favour during your forward contract, though you may be able to take advantage of market movement with a spot contract.
You must consider your risk appetite and evaluate your budget when pre-booking foreign currency. It may be worthwhile considering other strategies if you’re unsure of your requirements.
You can enter a forward contract exchange with WorldFirst in order to pay an upcoming invoice in a foreign currency, or in preparation of an upcoming purchase in a foreign currency, but won’t be able to trade forwards for speculative purposes.
- There’s an initial deposit requirement associated with forward contracts ranging from three to 10 per cent depending on the length of your contract. Please reach out to our team who can look to see whether you’re eligible for a credit facility to help cover this.
How do forward contracts work at WorldFirst?
Forward contracts help protect businesses against currency fluctuations without having to buy currency upfront on the spot market. You’ll have a fixed rate, taking away uncertainties.
The spot price is the current market price at which a currency pair is bought or sold for immediate payment and delivery.
Types of forward contracts
The main types of forward contracts WorldFirst offers are fixed, window and flexible forward contracts. These are outlined below:
Fixed forward contracts
Buy or sell an exchange on a determined notional amount for a particular value date in the future – known as the value date or maturity date.
Flexible forward contracts
Draw down funds in one go or make multiple payments over the tenure (course) of your contract, ensuring the total agreed amount is settled by the value date or maturity date.
Window forward contracts
Buy specific amounts of foreign currency within a range of settlement dates – known as windows – at predetermined rates. The windows can be used to offer more flexibility in securing currency rates than outright forward contracts.
How to book a forward contract
If you're a newly trading customer with WorldFirst
You can find out more about what you need, from hedging strategies to currencies involved and length and rate of contracts by calling our team on +31 20 299 4960 (local call rates and charges apply).
We’ll clearly cover the below terms to ensure you’re comfortable with the conditions of the forward.
These terms include:
- The currencies involved
- The rate of the contract
- Tenure (length) of the contract
- Determining whether you require a fixed, flexible, or window forward
- Explaining deposit/initial margin requirements, in case a credit facility is appropriate to help cover initial margin requirements
- Understanding if you’ll be using this (forward bought) currency in relation to the sale or purchase of goods or services, or for direct investment
If you're an existing WorldFirst customer
You can easily book fixed forward contracts online and window and flexible forward contracts by calling +31 20 299 4960 and speaking to one of our team (local call rates and charges apply).
If you request a rate further than a spot contract (trade date, plus two days), you’ll receive a pop-up on your account informing you that you’re about to book a fixed forward contract with WorldFirst and that a deposit may be required.
Once you click “Accept Rate & Book Transaction” you’ll enter a legal contract with WorldFirst to buy or sell the currency you’ve selected.
For added transparency, you’ll also receive detailed information on how we calculate margin requests. This information is important in case your rate significantly moves during the tenure of your contract, thus requiring a margin call.
To get started log in to your account.
Businesses like yours trust WorldFirst
- Almost 1,000,000 business have sent $300B around the world with WorldFirst and its partner brands since 2004
- Your money is safeguarded with leading financial institutions
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