A Currency Forward Contract is a legal contract to buy a certain amount of currency or currency pairs at an agreed rate in the future.
It allows you to take control of international payments by protecting you from losses due to currency fluctuations, which is important in times of economic uncertainty.
Here are 3 key advantages to a Forward Contract
Adopting a wait-and-see approach or exchanging when you simply need to could prove very costly. Take risk off the table with a Forward Contract.
The FX market is practically impossible to predict. A Forward Contract buys you certainty, so you know exactly what your property purchase is going to cost.
Eliminate the worry and stress of exchange rate watching with a Forward Contract and give yourself the most important commodity in life back; time.
The purpose of a Forward Contract is not to make more money, but to protect you from adverse movements in the exchange rate. If you choose to use a Forward Contract, you need to accept that the market may work in your favour during the time window. If this happens, you are still obliged to complete the Forward Contract at the lower rate, as this is what has been secured on your behalf from the live market. Similar to buying a stock or share. The tool can be likened to that of a fixed mortgage instead of a variable rate mortgage where the amount you pay each month can change.
Our highly experienced currency experts use their market knowledge and
a bespoke risk management software to help you decide on
the right course of action.
Use or currency risk calculator to see how you can be impacted.
If Mr & Mrs Jones had used a forward contract when they were budgeting for their purchase they could have saved £13,465 or €15,961.41
After finding their perfect property they pay a deposit of 10%.
Time to complete the purchase of their dream home & pay the final balance of €315,000
If Mr & Mrs Jones had used a forward contract when they were budgeting
for their purchase they could have saved £13,465 or €15,961.41
See how much your chosen currency has changed over the last 12 months:
In the last twelve months you could have by NOT
using a Forward Contract.
Find out more about how locking in an exchange rate with a
Forward Contract can help you avoid losing money. Complete our
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Suppose you are buying a villa in Spain for €200,000 but won’t be paying the money for a month or two while the lawyers sort out the legal side. If you are paying for it in euros but are currently holding your money in pounds, any rate changes in the meantime will change the price of the property. Even a 1 percent loss in the value of the pound – and that can happen in a day – will send your property rising in price by thousands of euros.
Forward Contracts are very common for businesses that import goods from overseas, as business owners generally want no surprises on their profit margins from selling these goods. A Forward Contract for an individual purchasing a property abroad will come down to two things more often than not; budget and risk appetite.
If exchange rates are anywhere near your budget for the project or forecasts suggest they are headed that way, you risk losing the property or even your deposit and so a Forward Contract will be crucial. If your risk appetite is low or even medium, a Forward Contract will be a great option for you too.
The exchange rate you’ll receive takes into account the market rate on the day you book your Forward Contract, a margin charged by Excel Currencies, and the central bank interest rates for the currencies you are exchanging.
You may be asked to pay an advance payment at the time of booking a Forward Contract, and/or during the life of the Forward Contract (a ‘margin call’). No interest is paid on advance payments.
Your advance payment is held as security for your completion of the contract until the maturity date. The advance payment is calculated as a percentage of the notional mark-to-market exposure of your Forward Contract. Mark-to-market exposure is the difference between your contracted rate and the current rate.
You have the option of early delivery at any point during the contract’s lifetime. For example, if you have bought €50,000 for use in 12 months, in 3 months’ time you could decide to make a payment using €10,000. When your Forward Contract matures you will need to settle the remaining amount. If you choose to deliver earlier than your agreed maturity date, the exchange rate may differ to your original contract.
If you want to close a Forward Contract, talk to us as soon as possible. When we close an FX transaction, we buy back the currency that we have bought when you entered into the FX transaction at prevailing market rates. If the value of the currency you have asked us to exchange has strengthened, a loss will be incurred on the FX transaction and you will be liable to pay us the amount of that loss, together with any reasonable expenses or other costs we incur as a result.
Forward contracts typically start at £20,000 but lower amounts may be considered.
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