What is a forward contract?
A Forward Contract is an arrangement that allows you to transfer money at some time (up to 12 months in the future) at an exchange rate that you agree to now, so that you know what the exchange rate will be at the time the transaction takes place.
A Forward Contract may be beneficial for business and individuals if exchange rates are particularly attractive now, and you want to lock in that rate to hedge against uncertainty in the future. This can be especially helpful for small businesses who want to keep their cash flows predictable when buying or selling overseas.
However, a Forward Contract precludes you from taking advantage of further beneficial movements, if your currency pair continues to move in a profitable way. To avoid missing out on further profitable movements, some people use a Forward Contract for a smaller portion of their total payment (say 50%) as a way to hedge against volatility.
At OFX, we offer a number of strategies to reduce your risk of market volatility and help you get a great rate wherever you are in the world.