Forward contracts: Definition and frequently asked questions

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

We’re reader-supported and may be paid when you visit links to partner sites. We don’t compare all products in the market, but we’re working on it!

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.

Name Product Minimum Opening Deposit Minimum Spreads for Major Currencies Commission Minimum Trade Size Platforms
Vantage FX
AUD 200
0.0 pips - 1.0 pips
$0
0.01 lots
MetaTrader 4
MetaTrader 5
TradingView
Disclaimer: CFD Service. Your capital is at risk.
Spreads start from 0.0 on major currency pairs and you get some of the lowest forex trading fees in Australia. Plus you can place trades and find global trends through the TradingView charts platform.
eToro Forex Trading
USD 200
1.0 pips
$0
US$200 (to CopyTrade)
eToro Trading Platform
Disclaimer: CFD Service. Your capital is at risk.
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 200
0.7 - 3.0 pips
$0
N/A
Plus500 Trading Platform
Disclaimer: CFD Service. Your capital is at risk.
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
0
0.6 - 1.5 pips
$0
1 lot
MetaTrader 4
ProReal Time
IG Trading Platform and Apps
L2
CFD Service. Your capital is at risk.
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
CFD Service. Your capital is at risk.
Saxo Forex Trading (Classic Account)
AUD 3,000
0.5 pips
$0
$1000
SaxoTraderGO
SaxoTraderPRO
CFD Service. Your capital is at risk.
Trade majors, minors, exortics, crypto and spot metals on Saxo's award-winning trading platfrom.
Citi Foreign Exchange Services
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.
Blueberry Markets Forex Trading
USD 100
From 0.0 pips
$0
0.01
MetaTrader4, MetaTrader5
CFD Service. Your capital is at risk.
Bottom of the market fees on forex, CFDs and commodities with 24/7 quality customer service.
CMC Markets
0
0.7 - 1.5 pips
$0
0.01 lots
CFD Next Generation
MetaTrader 4
CFD Service. Your capital is at risk.
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
Disclaimer: CFD Service. Your capital is at risk.
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.
loading

Compare up to 4 providers

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 0.00 0.748 USD
7,476
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 0.75 USD
7,498
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 250 1 - 2 days AUD 0.00 0.75 USD
7,498
$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 2,000 1 day AUD 0.00 0.75 USD
7,498
Better exchange rates for Finder customers.
WorldFirst sends 60+ currencies at competitive rates. If you find a better eligible quote, WorldFirst will beat it.
Go to site Show details
AUD 2,000 1 day AUD 0.00 0.75 USD
7,498
Send guarantees to match any competitor’s exchange rate. T&Cs apply.
Send provides fee-free transfers via its 24/7 multi-currency payments platform with real-time quotes.
Go to site Show details
AUD 1 Same day AUD 0.00 0.749 USD
7,491
XE has fast transfers with low fees and a range of foreign currency tools. Go to site Show details
AUD 1 Same day AUD 3.99 0.744 USD
7,435
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 0.75 USD
7,464
Wise uses the mid-market rate and transparent fees to help you send money in 50+ currencies. Go to site Show details
AUD 200 1 - 2 days AUD 50.00 0.752 USD
7,480
New customers sending over AUD 500 from Australia use code FINDER50 to get AUD 50 off. Valid till 30th June 2021. T&Cs apply.
InstaReM offers simple transfers with a flat 0.5% transfer fee for most transfers.
Go to site Show details
AUD 1 1 day AUD 52.00 0.749 USD
7,452
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 0.745 USD
7,443
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

Compare up to 4 providers

Disclaimer: Exchange rates change often. Confirm the total cost with the provider before transferring money.
Name Product Standard brokerage fee Inactivity fee Markets International
eToro (US, EU stock trading)
US$0
US$10 per month if there’s been no login for 12 months
Global shares, US shares, ETFs
Yes
Zero brokerage share trading on US stocks with trades as low as $50.
Join the world’s biggest social trading network when you trade stocks, commodities and currencies from the one account.
Superhero share trading
$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.
ThinkMarkets Share Trading
$8
No
ASX shares, ETFs
No
Limited offer: Get 5 free ASX trades when you open a new account with ThinkMarkets before June 30, 2021 (T&Cs apply).
Buy and sell CHESS sponsored ASX shares with $0 brokerage on your first 5 trades. Only $8 flat fee brokerage thereafter, plus enjoy free live stock price data on an easy to use mobile app.
Bell Direct Share Trading
$15
No
ASX shares, mFunds, ETFs
No
⭐ Finder Exclusive: Get 5 free stock trades and unlimited ETF trades until July 31, 2021 when you join Bell Direct.
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.
IG Share Trading
Finder Award
IG Share Trading
$8
$50 per quarter if you make fewer than three trades in that period
ASX shares, Global shares
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, plus get access to 24-hour customer support.
Saxo Capital Markets (Classic account)
$6.99
No
ASX shares, Global shares, Forex, CFDs, Margin trading, Options trading, ETFs
Yes
Acess 19,000+ stocks on 37 exchanges worldwide
Low fees for Australian and global share trading, no inactivity fees, low currency conversion fee and optimised for mobile.
CMC Markets Stockbroking
$11
No
ASX shares, Global shares, mFunds, ETFs
Yes
$0 brokerage on global shares including US, UK and Japan markets.
Trade up to 9,000 products, including shares, ETFs and managed funds, plus access up to 15 major global and Australian stock exchanges.
loading

Compare up to 4 providers

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.

Back to top

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.

Back to top

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?
Back to top

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.
Back to top

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.

More guides on Finder

Ask an Expert

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms of Use, Disclaimer & Privacy Policy and Privacy & Cookies Policy.
Go to site