What is a forward contract? Locking in an exchange rate
By SendPay Business · · 2 min read
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A forward contract lets a business agree today on the exchange rate it will use for a currency payment in the future. If a UK importer must pay a supplier in dollars in three months, a forward fixes how many pounds that will cost, whatever the market does in between.
Spot vs forward
A spot trade exchanges currency now at today's rate. A forward agrees the rate now but exchanges the money on a set future date. The forward rate is based on the spot rate adjusted for the interest rate difference between the two currencies.
How it works
- The business agrees the amount, the currencies and the future date with its provider.
- The provider may ask for a deposit, often a percentage of the amount.
- On the date, the business pays the agreed pounds and receives the foreign currency at the fixed rate.
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Benefits and risks
A forward gives certainty, so prices and budgets don't swing with the market. The trade-off is that if the rate moves in your favour, you don't benefit, and the contract usually has to be honoured even if the deal it was for falls through.
Where SendPay fits
SendPay platforms include GBP, EUR and USD accounts and exchange between them at the time of the transfer, under your own brand and powered by licensed partners. SendPay doesn't offer forward contracts. You can preview your platform before you launch.
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SendPay Business is a technology company, not a bank. Accounts, cards and payments are powered by licensed partners.
Questions people ask
What forward rate would I get?
Work it out from today's rate and the two interest rates in the free calculator.
Forward exchange rate calculator →What is the mid-market rate?
The fair rate halfway between buy and sell.
What is the mid-market rate? →Read next
Spotted a mistake or something out of date? and we'll fix it. How our guides are made
This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. Other companies named in this guide are reference points only and are not affiliated with SendPay Business.