A forward trade, also known as a forward contract, is a buy now, pay later currency hedging solution and differs from Spot currency trades and regular money trades. Forward trades are an ideal currency exchange tool, mitigating currency risk against ever-moving exchange rates, giving you the ability to plan and budget for your overseas payments.
The advantages of forward trades:
✔ Currency exchange is available in the majority of freely tradable currencies
✔ Set the exchange rate now; settle the currency trade up to 12 months in the future
✔ Protect against moving exchange rates during your chosen time frame
✔ Ideal for sending money abroad
✔ An easy and low-cost way to help manage exchange rate fluctuations
✔ Money transfer services delivered professionally
How can you use a Forward trade?
A Forward trade is useful if you are buying an overseas property, for example, and need to pay different amounts on fixed installment dates. By setting the exchange rate in advance, you can guarantee the amount you will need to pay each time and budget more effectively, protecting the trades against currency risk.
How do forward trades work?
Forward contracts give your business the control to set your desired currency amount and settlement date when you agree to the trade, limiting your currency exposure. All that is required is a small deposit to secure the rate, and payment can be deferred until up to 12 months.
The ability to set an exchange rate in advance is an excellent way to secure a guaranteed currency amount regardless of what happens in currency markets between the transaction agreement date and the settlement date.
How does payment work with a forward trade?
To make a Forward trade, you agree to exchange a specific amount of one currency for another at a fixed exchange rate, then settle that trade on a date you have chosen, which can be up to 12 months in the future.
- You set the amount of currency required, the exchange rate and settlement date on the day that you agree to the trade, avoiding the exchange rate risk during that time. You simply pay a small deposit to secure the exchange rate, and then no payment is required until the agreed settlement date for the trade.
- Currency trades can be booked against the vast majority of freely tradable currencies and not just against Pounds Sterling.
- In practice, the ability to set an exchange rate in advance in this way guarantees the amount of currency that you will need to pay for or receive in exchange for a given amount of foreign currency, regardless of what happens to exchange rates between the date you agree with the transaction and the settlement date.
You can also make multiple payments from the initial lump sum and set the length of the forward trade for a time that suits your needs, giving you complete payment flexibility.
Because the exchange rate is fixed, your rate will be protected from currency movements during the time you have agreed. This solution is ideal for future payments when exchange rates are uncertain, so your money is protected from unfavourable currency market movements between now and the time you need to make your international payment.
By fixing the exchange rate in advance, you can eliminate the risk of currency fluctuations on your international transactions. You will be able to calculate the value of all your future transactions within the period of the Forward trade with certainty, taking the stress out of continuing international transfers.
Making a Forward trade
Forward trades require you to make two transfers to Halo Financial. You will need to send us a deposit of 10% upfront or another agreed percentage of the total value of the currency trade. The remaining 90% balance must be paid before the agreed settlement date (the future date that the currency has been reserved for).
How to pay for a Forward trade
Both the deposit and balance payment can be paid for by CHAPS, Faster Payments (dependent on your bank) or BACS, assuming your settlement currency is Sterling.
You will need to settle Forward trades that are to be paid in any currency other than British Pounds or Sterling funds held in accounts outside of the UK, by electronic Telegraphic Transfer (TT) – also known as a SWIFT transfer.
It’s important to factor in enough time for the transfer to clear into Halo’s client accounts: CHAPS transfers and Faster Payments clear the same day and BACS on the third business day.