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What is a Forward Contract?

GuidesWhat is a Forward Contract?

When you are sending money abroad, there are many things you can do to make the process easier or to help make savings. One such way to achieve both of these things is to create a forward contract between yourself and the seller, ensuring you pay the price you want, regardless of exchange rates.

The simple definition of a forward contact is that it is a contract between you and the seller that states you will buy a product at a specified time(s) and price. The price will be agreed upon in your own currency before the contract is signed, which is in contrast to the ‘usual’ method of sending money abroad, which normally means making a deal with the seller without a set price in your own currency (so exchange rates influence how much you pay).

Forward contracts can be used for one-off payments; however, they are of most benefit when multiple payments will be made. Forward contracts exist as a safeguard against falling foreign exchange rates, so they are therefore particularly useful for making sure you won’t end up paying a lot more in the future should the value of your currency take a turn for the worst.

The last point to note about forward contracts is that they cost nothing to enter. This means that if you are going to have a long-term relationship with the seller, they are often the most advisable option.

At Pure FX, we help you with regard to sending money abroad in many different ways, and we make sure you get value for money with every transaction you make.

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