A forward contract is the single most important financial tool available to anyone making a large international money transfer. Yet most people have never heard of them — because banks rarely offer them to personal customers, and apps don't offer them at all.
This guide explains exactly how forward contracts work, when they make sense, how much they cost, and how to get one.
What is a forward contract?
A forward contract is a legal agreement between you and a currency broker to exchange a fixed amount of currency at a fixed exchange rate on a fixed future date.
Instead of accepting whatever exchange rate exists on the day you need to transfer, you lock in today's rate — and that rate is guaranteed regardless of what the market does between now and your transfer date.
The three things a forward contract fixes:
- The amount to be exchanged
- The exchange rate
- The settlement date
A simple example
You are buying a property in Spain for €300,000. The purchase completes in five months. Today's GBP/EUR rate is 1.17.
Without a forward contract:
You wait five months. On completion day, GBP/EUR has fallen to 1.09. Your €300,000 now costs £275,229 — £20,513 more than it would have cost at today's rate.
With a forward contract:
Today you lock in 1.17. Five months later, you pay £256,410 — the rate you agreed, regardless of what happened in the market.
The forward contract saved you £18,803 on a single purchase.
How forward contracts work in practice
Step 1: Agree the contract
You tell your currency broker the amount, the currency pair, and the date you need the funds. They quote you a forward rate (typically very close to the current spot rate, with a small adjustment for the time period).
Step 2: Pay a deposit
You pay an initial deposit to secure the contract — typically 5–10% of the total transfer amount. On a £250,000 transfer, that is £12,500–£25,000.
Step 3: The rate is locked
The exchange rate is now fixed. Market movements from this point are irrelevant to your transfer cost.
Step 4: Settle on the agreed date
You pay the remaining balance. The transfer executes at the agreed rate. The funds arrive at your destination.
Forward rate vs spot rate: what is the difference?
The spot rate is the exchange rate for an immediate transfer — executed within 1–2 business days.
The forward rate is the exchange rate for a future transfer. It is derived from the spot rate adjusted for the interest rate differential between the two currencies over the contract period.
In practice, for most currency pairs and timeframes up to 12 months, the forward rate is very close to the spot rate. The adjustment is typically small and often moves in your favour.
When does a forward contract make sense?
Always use a forward contract when:
- You have agreed to buy a property abroad and completion is weeks or months away
- You have a business contract with a future obligation in a foreign currency
- You are emigrating and have agreed a completion date for your UK property sale
- You are receiving a large inheritance or asset sale in a foreign currency with a known settlement date
A forward contract is less appropriate when:
- You have no fixed date and complete flexibility on timing
- The amount is small enough that rate movements are not material
- You actively want to speculate on rate movements (use a market order instead)
Can I get out of a forward contract?
A forward contract is a binding agreement. If your circumstances change:
- The settlement date can often be adjusted (extended or brought forward) — speak to your specialist
- The contract can sometimes be closed out at a cost if the rate has moved against you
- Partial drawdowns are possible — if you need some funds earlier, you can draw down part of the contract
This is why it is important to work with a specialist who knows your situation and can manage the contract flexibly as your timeline evolves.
How much does a forward contract cost?
There is no separate fee for a forward contract. The cost is built into the exchange rate spread — the same margin that applies to any transfer. IFA Markets FX charges 0.5–1.5% above the interbank mid-market rate.
The deposit (5–10%) is not a cost — it is your part of the contract that is returned to you at settlement as part of the full transfer.
Forward contracts vs market orders: which should I use?
| Forward contract | Market order | |
|---|---|---|
| What it does | Locks in a specific rate now | Targets a better rate in the future |
| Certainty | Complete | None until target is hit |
| Best for | Known settlement date | Flexible timeline, want better rate |
| Risk | Miss out if rate improves | Rate may never reach target |
| Deposit required | Yes (5–10%) | No |
For property purchases: Use a forward contract. You have a known settlement date and need certainty.
For flexible transfers: Use a market order if you want to aim for a better rate and have no deadline.
Some clients use both: a forward contract for the main balance (certainty on the bulk of the transfer) and a market order for a smaller portion (opportunity to benefit if rates improve).
Who offers forward contracts in the UK?
Forward contracts are offered by FCA-regulated specialist currency brokers. They are not routinely available from high street banks for personal customers, and not available from consumer money transfer apps (Wise, Revolut, etc.).
UK specialist brokers offering forward contracts include: IFA Markets FX, TorFX, Currencies Direct.
IFA Markets FX offers forward contracts up to 12 months ahead, with no upper limit on transfer size.