What is a forward exchange contract?

When you send money overseas, the exchange rate you get has a huge impact on how much it will cost you. But the foreign exchange market can be volatile, with rates fluctuating every day.

If you're planning on exchanging currencies sometime in the future and there's a good exchange rate available today, you might want to lock in that rate right now to protect against any potential exchange rate drops.

That's where a forward exchange contract comes in.

What is a forward contract?

A forward contract is an agreement between two parties to carry out a trade in future but at a price that is determined today.

Forward contracts are commonly used by commodities traders, but they can also be useful for individuals and businesses sending international money transfers.

With a forward currency contract, you can exchange currencies on a future date, but at an exchange rate you lock in today.

Why use a forward exchange contract?

There are a number of reasons both individuals and businesses may want to use a forward contract:

• Save money. A forward exchange contract lets you protect yourself against exchange rate fluctuations and potentially lock in a better rate today.
• Peace of mind. A forward contract guarantees that you will receive a certain rate, which can help with budgeting or planning.
• Cash flow management. Using a forward contract makes it easier for business owners to manage their cash flow and budget for future expenses.
• Hedging. A forward contract is a useful hedge against fluctuating exchange rates, allowing businesses that regularly make international payments to manage their currency exchange risk.

Which companies offer forward currency contracts?

Here are some of the international money transfer services that offer forward contracts in Australia:

• TorFX. You can lock in an exchange rate up to 2 years before sending the transfer, but you'll need to pay a 10% deposit.
• OFX. You can lock in an exchange rate for up to 12 months when you take out a forward contract with OFX.
• Xe. Xe's money transfer service allows you to lock in your exchange rate so you can "buy now, send later".
• WorldFirst. You can lock in the current exchange rate for up to two years with a WorldFirst forward contract.

Some banks like NAB and CommBank also offer forward exchange contracts for business customers.

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20 of 22 results

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Filter Values	Finder Score	Fastest Transfer Speed	Fees (Pay by Bank Transfer)
TorFX		Finder Score 8.7 Great	24 hours	$0	TorFX sends money overseas in 40+ currencies, with competitive rates for transfer amounts over $2,000. Same-day transfers between AUD and NZD (under $100,000).	Go to site More info	loading
OFX		Finder Score 9.3 Excellent	24 hours	$0	OFX has no maximum limit transfers, with competitive exchange rates for 50+ currencies.	Go to site More info	loading
WorldFirst		Finder Score	24 hours	From $0	Open bank accounts in Australia, the UK, US, Canada, Japan and Europe. Send and receive funds with zero fees for large sums, including same-currency supplier payments.	Go to site More info	loading
TorFX Offer		Finder Score	24 hours	$0	TorFX guarantees to match any competitor's exchange rate. T&Cs apply.	Send money overseas in 30+ currencies with competitive rates for transfer amounts over $2,000.	Go to site More info	loading
WorldFirst Offer		Finder Score	24 hours	From $0	WorldFirst helps individuals and businesses make cheaper, faster, and safer international money transfers. Enjoy a $0 transfer fee and get access to daily market updates, rate alerts, and your call answered within 3 rings.	Go to site More info	loading
WorldFirst		Finder Score	24 hours	From $0	Better exchange rates for Finder customers. T&Cs apply.	WorldFirst sends 100+ currencies at competitive rates with no fees. If you find a better eligible quote, WorldFirst will beat it.	Go to site More info	loading
Xe Business Transfers		Finder Score	Within minutes	$0	Xe has fast transfers, low fees and a range of foreign currency tools. Send money to 200 countries in 130+ currencies.	Go to site More info	loading
TorFX Business Transfers		Finder Score	24 hours	$0	TorFX guarantees to match any competitor's exchange rate. T&Cs apply.	TorFX sends money overseas in 30+ currencies, with competitive rates for transfer amounts over $2,000.	Go to site More info	loading
OFX Business Transfers		Finder Score	24 hours	$0	OFX has no maximum limit transfers, with competitive exchange rates for 50+ currencies.	Go to site More info	loading
TorFX		Finder Score 8.8 Great	24 hours	$0	TorFX sends money overseas in 40+ currencies, with competitive rates for transfer amounts over $2,000. Same-day transfers between AUD and NZD (under $100,000).	Go to site More info	loading
OFX		Finder Score 9.1 Excellent	24 hours	$15	OFX has no maximum limit transfers, with competitive exchange rates for 50+ currencies.	Go to site More info	loading
Westpac		Finder Score	24 hours	From $0	Continue More info	loading
Moneycorp International Money Transfers		Finder Score	24 hours		The longest standing and largest full service specialist currency provider in the UK.	Continue More info	loading
Flash Payments International Money Transfers		Finder Score	417 days	$0	Low minimum transfer amount of just AU$200, with no set-up fees or transfer fees.	Continue More info	loading
Currencies Direct International Money Transfers		Finder Score	24 hours	$0	CurrenciesDirect makes transferring money abroad simple with bank-beating exchange rates.	Continue More info	loading
NAB		Finder Score	417 days	$30	Continue More info	loading
Suncorp		Finder Score	24 hours	$0	Continue More info	loading
St. George		Finder Score	24 hours	From $0	Continue More info	loading
Revolut Business		Finder Score	Within minutes	$0	Revolut allows your business to move money around the world quickly and cheaply with 30+ currencies and no maximum limit transfers. Plan fees apply.	Continue More info	loading
Airwallex		Finder Score	Within minutes	$0	0% foreign exchange margin and $0 fees on your first $20,000. T&Cs apply.	Streamline global payments across 150+ countries with fast settlements and competitive rates in over 60 currencies.	Continue More info	loading

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Types of forward contract

There are a few different types of forward contract to choose from depending on your transfer needs:

• Fixed forward contracts. This is the most common type of forward contract and ensures that the currency exchange will take place on a specific date in the future.
• Open/flexible forward contracts. With an open forward contract, you have the option to settle the contract at any time up to or on the specified date.
• Window forward contracts. This type of contract allows you to perform a currency exchange transaction within a specific date range, or window.

What are the potential drawbacks of using a forward contract?

There are 3 key downsides to using a forward exchange contract:

1. You could miss out on a better rate

The exchange rate you lock in with a forward contract may end up being worse than the rate you would have received later, which means it could actually cost you money.

2. Your needs may change

If you don't know for certain exactly how much currency you'll need to exchange in your future transaction, you could get caught out. Say you want to send $20,000 overseas, but later find out that you only need to send $15,000. You'd either need to cancel the contract or end up with $5,000 of foreign currency you don't necessarily need.

3. You may need to pay a deposit

You'll typically need to pay a 5-20% deposit when you enter into a forward contract, as well as other fees.

Our expert says: Predicting exchange rates is hard

"While a forward contract promises certainty, it doesn't guarantee a better deal. You should mostly use a forward contract if you're looking for peace of mind or because you need to lock in a certain rate for financial reasons, not because you're trying to predict currency movements."

Thomas Stelzer

Journalist

Frequently asked questions

• What is the difference between a forward contract and futures contract?

  A forward contract is traded over the counter (OTC) and is an agreement negotiated between two parties. Meanwhile, a futures contract is a standardised contract that can be publicly traded on an exchange.

• Can you break a forward contract?

  Yes, you can cancel a forward contract by entering into a transaction to reverse the original contract. This may result in a cost or a gain to you.

• How long do forward contracts last?

  The maximum length of time allowed for a forward contract varies depending on the currency exchange service you choose. While some providers offer a maximum contract length of one year, others allow you to lock in an exchange rate for up to two years.

• What is forward contract vs hedging?

  A forward contract allows you to hedge against exchange rate fluctuations. By locking in the current exchange rate for a future transaction, you can protect yourself against the risk of a falling exchange rate. That's why forward contracts are a common hedging strategy businesses can use to manage their currency exchange risk.

Written by

Tim Falk

Writer

Tim Falk is a writer for Finder, writing across a diverse range of topics. Over the course of his 15-year writing career, Tim has reported on everything from travel and personal finance to pets and TV soap operas. When he’s not staring at his computer, you can usually find him exploring the great outdoors. See full bio

Co-written by

Thomas Stelzer

Journalist

Tom Stelzer is a journalist with 6 years of experience covering personal finance, specialising in investment and cryptocurrency. With a Master of Media Arts and Production and a Bachelor of Communications in Journalism from the University of Technology Sydney, Tom provides expert analysis on digital assets and market trends, helping readers navigate the fast-evolving world of finance. See full bio