By Charlie Hinwick, ACCA · Last updated 24 October 2026 · Sources listed at the foot of the page

How does a forward contract work?

A forward contract has four fixed terms: the two currencies, the amount, the exchange rate and the settlement date (or a window of dates). Once you agree them, both sides are bound. On settlement you pay the agreed amount of your currency and the provider delivers the other currency to the account you nominate, usually the seller’s solicitor or notary, or your own overseas account.

The forward rate is not a forecast. It is the current spot rate adjusted for the interest-rate difference between the two currencies over the period, plus the provider’s own margin. That is why a forward rate can be slightly better or slightly worse than today’s spot rate without anyone predicting anything.

What is the difference between a spot and a forward contract?

A spot contract converts currency now, for delivery within a short standard period. The FCA’s guidance treats an exchange between two major currencies as spot if delivery is scheduled within two trading days. Anything settling later than that is, legally, a forward.

	Spot contract	Forward contract
When the rate is set	Now	Now
When money moves	Within about two trading days for major currencies	On an agreed future date
Upfront payment	Full amount	Deposit, balance before settlement
Protects against a rate fall	Only if you have the money now	Yes
Benefits from a rate rise	No (already converted)	No
Can you walk away?	No once booked	No; closing early can cost you

What does a forward contract protect you from, in pounds?

Take a buyer who needs €345,000 for an overseas property completing in four months. The figures below use illustrative round rates, not a current quote.

Scenario at completion	Cost of €345,000	Versus fixing at 1.15
Forward fixed at 1.15	£300,000	—
Unfixed, rate falls to 1.12	£308,036	£8,036 more
Unfixed, rate rises to 1.18	£292,373	£7,627 less

The table shows the honest trade-off. The forward removes an £8,000 downside and also removes a £7,600 upside. Its value is certainty: you know the sterling cost of the purchase on the day you sign, which matters most when the budget has no slack.

How much deposit do you pay on a forward contract?

Providers ask for a deposit when the contract is booked, set as a percentage of the contract value in their terms. The deposit is security: if the market moves sharply against the rate you fixed, the provider is exposed if you then fail to complete. Many terms let the provider ask for a top-up (a margin call) if that exposure grows. Check three things before booking: the deposit percentage, the margin-call trigger, and how quickly a top-up must be paid.

What happens if your purchase falls through?

A forward contract is binding even if the reason you booked it disappears. If you no longer need the currency, the provider closes the contract out: it buys back or sells the currency at the rate on the day you cancel. If the market has moved against your fixed rate, you pay the difference; if it has moved in your favour, terms vary on whether you receive the gain. This is the single biggest risk of a forward and the main reason to fix only the amount you are confident you will need.

If completion is simply delayed, many providers can extend the settlement date. The FCA’s guidance accepts that a forward amended by mutual consent to match a changed payment date can keep its status, but the extension may be priced at a different rate.

Are forward contracts regulated by the FCA?

Often not, and this is the detail most broker websites skip. Under the FCA’s Perimeter Guidance (PERG 13.4), a currency forward is excluded from investment regulation when it is a means of payment for identifiable goods, services or a direct investment, is physically settled, and is not traded on a trading venue. The FCA treats land as goods, so a forward for an overseas property purchase can fall within that exclusion.

The FCA’s own worked examples draw some lines that matter for private clients:

• Buying a property or paying school fees abroad: a means of payment for identifiable goods or services, so the exclusion can apply.
• Fixing the sterling value of an inheritance stuck in probate: the FCA says the exclusion is not available, because the contract is not linked to any goods, services or direct investment.
• Sending money to a family member abroad: the exclusion is not necessarily available; it depends on what the recipient will use the money for.

Why this matters: a payment institution’s FCA authorisation covers the payment itself, and safeguarding rules protect money held to make that payment. The forward contract that fixed the rate can sit outside those protections. Ask your provider in writing which parts of the arrangement are regulated before you pay a deposit. Our guide to checking a broker’s FCA authorisation explains what each protection covers.

Who offers forward contracts?

Specialist currency brokers routinely offer forwards to private clients, and this is one of the clearest differences between a broker and a high-street bank, which tends to reserve them for business customers. Mid-market-rate apps generally do not offer them. Each of our broker reviews notes whether forward contracts are available, and our bank versus broker comparison sets out the wider trade-offs.

When is a forward contract worth considering?

A forward tends to suit a transfer with a known amount, a known date and a budget that cannot absorb a few per cent of movement: a property completion, a fixed school or university fee, or a business invoice. It suits a speculative or uncertain amount badly, because of the close-out risk. Some buyers split the difference, fixing part of the sum forward and converting the rest at spot nearer the date. For the purchase-side process on a common corridor, see sending money from the UK to Spain.

Frequently asked questions

How far ahead can I fix an exchange rate?

Each provider sets its own maximum term in its terms and conditions. Check the maximum before you book, and remember that the longer the term, the more the rate can move against you before settlement, which raises the chance of a margin call.

Is a forward rate the same as today’s rate?

Not quite. It is today’s spot rate adjusted for the interest-rate difference between the two currencies over the contract period, plus the provider’s margin. Compare the forward rate you are offered with the mid-market rate to see the margin.

Can I cancel a forward contract?

You can ask the provider to close it out, but you are liable for any loss between your fixed rate and the rate on the day of cancellation. There is no cooling-off right that lets you walk away for free.

Do I have to settle the whole amount on one day?

Not always. Some providers offer flexible forwards that let you draw the currency down within a window. The FCA’s guidance accepts a flexible delivery date within a defined and reasonably short window.

Is a forward contract the same as a currency option?

No. An option gives the right, but not the obligation, to exchange at a set rate, and usually costs a premium. The FCA says the payment exclusions for forwards do not apply to options or swaps.

Does a forward contract cost extra?

There is rarely a separate fee; the cost sits in the margin built into the forward rate. The real cost to watch is the close-out loss if you no longer need the currency.

Last updated 24 October 2026 · Compiled and checked by Charlie Hinwick, ACCA. Nothing on this page is a personal recommendation or regulated financial guidance. Worked examples use illustrative rates, not live quotes. Confirm contract terms with your provider before you commit.