Forward contracts to future proof plans

What is 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 are 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 would not be able to trade forwards for speculative purposes.
There is 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 your relationship manager who can look to see whether you are eligible for a credit facility to help cover this.

For more information download our free FX hedging guide below.

Download free hedging guide

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 will 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

You can find out more about what you need, from hedging strategies to currencies involved and length and rate of contracts by calling one of our relationship managers on 020 83918 7826 (local call rates and charges apply).

Your relationship manager will clearly cover the below terms to ensure you are comfortable with the conditions of the forward.

These terms include:

The currencies involved
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 will be using this (forward bought) currency in relation to the sale or purchase of goods or services, or for direct investment

You can easily book fixed forward contracts online and window and flexible forward contracts by calling +44207 3269120 and speaking to one of our relationship managers (local call rates and charges apply).

If you request a rate further than a spot contract (trade date, plus two days), you will receive a pop-up on your account informing you that you are about to book a fixed forward contract with WorldFirst and that a deposit may be required.

Once you click "Accept Rate & Book Transaction" you will enter a legal contract with WorldFirst to buy or sell the currency you have selected.

For added transparency, you will 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.

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Fix your rate and future proof your plans with a forward contract from WorldFirst