Forward contracts: Definition and frequently asked questions

Forward contracts offer protection against fluctuating exchange rates when you need to send an international money transfer.

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When you need to send money overseas, the exchange rate you receive is a crucial factor in determining the overall cost-effectiveness of your international money transfer. The value of the Australian Dollar relative to other currencies around the world changes all the time and is influenced by a range of factors. This, in turn has an impact on how much of the money you send arrives to your beneficiary.

You can protect yourself against fluctuating exchange rates by placing a forward contract, which allows you to secure the current exchange rate for use in a future international money transfer.

Data indicated here is updated regularly
Name Product Minimum Opening Deposit Minimum Spreads for Major Currencies Commission Minimum Trade Size Platforms
eToro Forex Trading
USD 200
1.0 pips
$0
US$200 (to CopyTrade)
eToro Trading Platform
Margin FX is a complex financial product and traders are at high-risk of losing all of or more than their initial investment.
Social trading, advanced charting tools, plus receive exclusive benefits through the eToro Club (membership is tiered based on the equity in your trading account).
Plus500 Forex Trading
AUD 100
0.7 - 3.0 pips
$0
0.01 lots
Plus500 Trading Platform
Trading CFDs and forex on leverage is high-risk and losses could exceed your deposits.
Finder exclusive offer: Open a new trading account and receive a welcome bonus of AU$110 when you deposit your first $370 and enter the bonus code “Special200”. T&C’s apply.
Open an account and experience Plus500's easy-to-use proprietary trading platform, 24/7 online chat support and free real-time forex quotes.
IG Forex Trading
AUD 0
0.6 - 1.5 pips
$0
1 lot
MetaTrader 4
ProReal Time
IG Trading Platform
Trading CFDs and forex on leverage is high-risk and losses could exceed your deposits.
Introductory offer: For the first two weeks of trading, take advantage of IG's lower minimum trade sizes to help you build confidence.
Choice of trading platforms. Choose optional extras like advanced charting, reporting and order types. Over 90 currency pairs to choose from.
IC Markets Forex Trading (Raw Spread account)
USD 200
From 0.0-0.1 pips
AU$3.50 per 100k traded
0.01 lots
MetaTrader 4
MetaTrader 5
cTrader
Trading CFDs and forex on leverage is high-risk and losses could exceed your deposits.
Citi Foreign Exchange Services
AUD $0
0.5 to 1.5
$0
US$20,000
Desktop / Relationship Manager
Invest directly in hundreds of global currencies with help from experienced forex brokers.
Note: Citi is not a CFD provider.
City Index Forex Trading
AUD 0
0.5 - 1.22 pips
$0
0.01 lots
MetaTrader 4
At Pro
Advantage Web
Trading CFDs and forex on leverage is high-risk and not suitable for all investors and you could lose your initial investment. Always check the provider’s PDS and consider the risks before trading.
Choice of trading platforms, integrated Reuters news and device-synching so you can monitor trades across multiple devices.
Blueberry Markets Forex Trading
$100
From 0.0 pips
$0
0.01
MetaTrader4, MetaTrader5
Trading CFDs and forex on leverage is high-risk and losses could exceed your deposits.
Bottom of the market fees on forex, CFDs and commodities with 24/7 quality customer service.
Pepperstone Forex Trading (Razor Account)
USD 200
0.0 - 0.1 pips
AU$3.50 per 100k traded
0.01 lots
MetaTrader 4
MetaTrader 5
cTrader
Margin FX is a complex financial product and traders are at high-risk of losing all of or more than their initial investment.
Choose from a range of fee-free funding methods, plus a suite of 10 different apps available as part of Pepperstone's Smarter Trading Tools.
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Trading CFDs and forex on leverage is high-risk and you could lose more than your initial investment. It may not be suitable for every investor. Refer to the provider’s PDS and consider the risks before trading.

Min. Transfer Amount Transfer Speed Online Transfer Fee Rate Amount Received Description CTA Details
GBP 0 1 - 2 days AUD 1.99 0.768 USD
7,681
Azimo sends money directly to a bank account or over 280,000 cash pick-up points. It also has fast transfers to 50+ countries. Go to site Show details
AUD 2,000 1 day AUD 0.00 0.771 USD
7,706
TorFX guarantees to match any competitor's exchange rate. Conditions apply.
TorFX sends money overseas in 30+ currencies, with competitive rates for transfer amounts over $2,000.
Go to site Show details
AUD 2,000 1 day AUD 0.00 0.771 USD
7,706
SendFX guarantees to match any competitor’s exchange rate. T&Cs apply.
Fee-free transfers in 30+ currencies to over 200 countries.
Go to site Show details
AUD 2,000 1 day AUD 0.00 0.771 USD
7,706
Better exchange rates for Finder customers.
WorldFirst sends 60+ currencies at competitive rates with no fees. If you find a better eligible quote, WorldFirst will beat it.
Go to site Show details
AUD 250 1 - 2 days AUD 0.00 0.771 USD
7,706
$0 transfer fees for Finder customers.
OFX has no maximum limit transfers, with competitive exchange rates for 45+ currencies.
Go to site Show details
AUD 1 1 day AUD 52.00 0.77 USD
7,658
Pay no fees on your first two transfers, up to $3,000.
SingX offers the real exchange rate every time you make a transfer and can help you send money across the world.
Go to site Show details
AUD 10 Within an hour AUD 2.99 0.765 USD
7,650
Special offers like free transfers and better exchange rates available for new customers.
Remitly has quick, affordable transfers around the world, with both express and economy options.
Go to site Show details
AUD 1 Same day AUD 0.00 0.77 USD
7,698
XE has fast transfers with no fees and a range of foreign currency tools. Go to site Show details
AUD 200 1 - 2 days AUD 50.00 0.773 USD
7,690
Exclusive: Use code FINDER10 to receive US$10 off your first transaction.
InstaReM offers simple transfers with a flat 0.5% transfer fee for most transfers. Zero-margin rates on some currencies.
Go to site Show details
AUD 5 1 - 2 days EUR 3.00 0.766 USD
7,658
Special offer: Zero fees on your first 10 transfers.
CurrencyFair has bank-beating exchange rates and fast transfer times on 15+ popular currencies.
Go to site Show details
AUD 1 Same day AUD 3.99 0.764 USD
7,641
Use promo code 3FREE to send your first 3 transfers with no fee. Conditions apply.
WorldRemit sends money to 110+ countries for bank-to-bank deposits, cash pick-ups or mobile top-ups.
Go to site Show details
AUD 1 1 - 2 days AUD 45.00 0.774 USD
7,702
TransferWise uses the mid-market rate and transparent fees to help you send money in 45+ currencies. Go to site Show details

Compare up to 4 providers

Disclaimer: Exchange rates change often. Confirm the total cost with the provider before transferring money.
Data indicated here is updated regularly
Name Product Standard brokerage fee Inactivity fee Markets International
IG Share Trading
Finder Award
IG Share Trading
AUD 8
AUD 50 per quarter if you make fewer than three trades in that period
ASX shares, Global shares, Forex, CFDs, Margin trading
Yes
$0 brokerage for US and global shares plus get an active trader discount of $5 commission on Australian shares.
Enjoy some of the lowest brokerage fees on the market when trading Australian shares, international shares, forex and CFDs, plus get access to 24-hour customer support.
eToro Share Trading (US stocks)
USD 0
USD 10 per month if there’s been no login for 12 months
Forex, CFDs, US shares
Yes
Zero brokerage share trading on US stocks with trades as low as $50.
Note: This broker offers CFDs which are volatile investment products and most clients lose money trading CFDs with this provider.
Join the world’s biggest social trading network when you trade stocks, commodities and forex from the one account.
Superhero share trading
AUD 5
No
ASX shares, ETFs
No
Pay zero brokerage on all Australian ETFs.
Trade ASX stocks with a flat $5 commission fee and a low minimum investment of just $100.
Bell Direct Share Trading
AUD 15
No
ASX shares, Options trading, mFunds, ETFs, Warrants
No
Invest in Australian shares, options and managed funds from the one account with no inactivity fee.
Bell Direct offers a one-second placement guarantee on market-to-limit ASX orders or your trade is free, plus enjoy extensive free research reports from top financial experts.
CMC Markets Stockbroking
AUD 11
No
ASX shares, Global shares, Forex, CFDs, Options trading, mFunds, ETFs, Warrants
Yes
$0 brokerage on global shares including US, UK and Japan markets.
Trade up to 9,000 products, including shares, managed funds, forex, commodities and cryptocurrencies, plus access up to 15 major global and Australian stock exchanges.
SelfWealth Share Trading (Basic account)
AUD 9.5
No
ASX shares, US shares
Yes
Trade ASX and US shares for a flat fee of $9.50, regardless of the trade size.
New customers receive free access to Community Insights with SelfWealth Premium for the first 90 days. Follow other investors and benchmark your portfolio performance.
ANZ Share Investing
AUD 19.95
No
ASX shares, Global shares, Options trading, mFunds, ETFs, Warrants
Yes
Earn 1 Qantas Point per AU$3 spent on brokerage fees on certain instruments.
Access Morningstar reports, company announcements and and live pricing via ANZ’s share investing platform. Available for desktop and mobile.
Westpac Online Investing Account
AUD 19.95
USD 63.50 per year on the global markets account
ASX shares, Global shares, Options trading, ETFs
Yes
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Important: Share trading can be financially risky and the value of your investment can go down as well as up. “Standard brokerage” fee is the cost to trade $1,000 or less of ASX-listed shares and ETFs without any qualifications or special eligibility. If ASX shares aren’t available, the fee shown is for US shares. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

What are forward contracts?

Forward contracts are an international money transfer tool that allow you to reduce your exchange rate risk. When you place a forward contract you can lock in the current exchange rate for an overseas money transfer that will take place at a later date.

Securing a rate in advance allows you to plan ahead and safeguard your finances against any potential future drops in the value of the Australian Dollar. If you expect the value of the currency you are planning on sending to fall, you can consider placing a forward contract and ensure that you get better value for money on your transfer.

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How do forward contracts work?

Forward contracts let you enjoy the benefits of a good exchange rate today on a transaction that will take place up to 12 months into the future. To calculate the rate for your forward contract, a money transfer provider will adjust the spot rate (the current market exchange rate) for what are known as ‘forward points’, which factor in the difference in interest rates between your sending and receiving countries and the length of time until your transfer will actually be completed. A standard formula is used across the industry when calculating forward point.

You will usually be required to pay a deposit to secure your exchange rate but will then be able to enjoy protection against any exchange rate fluctuations that may occur until your transfer is placed.

brian-case-study

For example, Brian knows that he will need to send a transfer of AUD $5,000 to the United States in two months’ time to pay off an outstanding debt to his brother. The current exchange rate is 1 AUD = 0.70 USD, but financial experts and economists are predicting the value of the Aussie Dollar to drop further in the coming weeks.

Brian doesn’t have all the funds needed to transfer the full amount now, so he places a forward contract with an online money transfer provider and locks in the current exchange rate. He pays a 10% deposit of $500 and, two months later, pays the remaining $4,500 and his transfer is sent. Brian’s brother receives USD $3,500 two days later.

Had Brian not placed a forward contract and simply transferred the money using the best exchange rate he could find, he would have had to settle for an exchange rate of 1 AUD = 0.67 USD. This means his brother would only have received $3,350 - $150 less than he received thanks to Brian’s forward thinking.

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What types of forward contracts are there?

Although this article only deals with forward contracts in terms of international money transfers, forward contracts can also be used as a trading tool across a range of other financial assets. These include shares, contracts for difference, commodities and more.


How do I compare forward contracts?

  • Exchange rates. Although forward points are calculated using an industry standard formula, the spot exchange rate on offer will differ from one company to the next. See which transfer companies regularly offer exchange rates that compare favourably to the competition.
  • Fees. Will you need to pay an extra fee to lock in a forward contract? If so, how much? And will you need to pay this on top of the standard transfer fee that a company already charges?
  • Transfer options. Consider the options available for placing a forward contract, such as online, over the phone, or by using a mobile app.
  • Customer support. If you ever have a question about a transaction, will you be able to get the help you need from your transfer provider?
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What are the pros and cons of forward contracts?

Pros

  • Protect yourself. Forward contracts allow you to protect your finances against the impact of fluctuating exchange rates.
  • Buy now, pay later. You don’t have to pay for the full cost of your transfer until it is actually placed, which could be up to 12 months into the future.
  • Choose a rate that suits you. Forward contracts give you the power and freedom to secure an exchange rate that suits your financial needs.

Cons

  • The exchange rate could improve. Predicting the future value of a currency can be difficult, so there is a risk that the exchange rate will rise in the interim and cost you money.
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What are some of the risks?

The main issue to be wary of with forward contracts is that the exchange rate could rise after you lock in a forward contract and you could end up losing out. A huge range of factors can affect the value of one currency relative to another, and sometimes it’s not possible to predict exactly which way the value of a currency will go.

Frequently asked questions

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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