Forward contracts

Here at Hermex, we’re dedicated to helping you to make overseas payments in the most simple and satisfactory way, with competitive rates and experienced dealers to make the entire transaction as smooth as possible. We’ve helped thousands of companies make easy, efficient global payments, and we’re confident that we can help your business too. A forward contract is just one of the three main types of transaction that we offer – for more details about your other options for global payments; take a look at our Spot Contracts and Market Orders.

What is a forward contract?

A forward contract is an agreement between two parties to exchange two currencies at a given exchange rate at some point in the future. It is a useful solution which allows you to think ahead and forward exchange your currency, securing a rate in anticipation of your payment, ahead of the competition of your transaction.

Forward contracts are usually conducted over 30, 60 or 90 day periods but can run up to 2 years. There are almost 100 currencies that are regularly traded as part of the global economy – and you can use forward contracts to make payments advantageously in every single one of them.

Forward contracts are particularly useful for transactions where you want a clear figure of how much you will be paying at a future date – for instance, with the purchase of goods from overseas, where delivery can take a month or two but you need to secure your rate in advance.

Flexible forward transactions

A flexible forward transaction has the same characteristics as a forward contract (see above) but with the added flexibility that during the course of the contract instead of drawing down at the agreed forward rate you can deal at the spot rate if that is now more favourable to you than the forward rate agreed at the beginning of the contract.

At the end of the contract you will still be liable to settle any of the undrawn-down forward transaction (i.e. the original amount less any amounts drawn-down at the agreed forward rate). However, you will be able to roll-forward any of the undrawn-down original forward contract.

IN THESE CIRCUMSTANCES, THE FUNDING COST TO ROLL THIS CONTRACT FORWARD MAY BE SUBSTANTIAL AND MAY EXCEED THE AMOUNT YOU SAVED BY DEALING DURING THE LIFE OF THE CONTRACT AT A SPOT PRICE BETTER THAN THE ORIGINAL FORWARD PRICE FIXED FOR THE CONTRACT.

How does it work?

No matter what type of contract you choose to make your global payments, when you register with Hermex you’ll be appointed a designated dealer who will manage your account and speak with you on a personal, one-to-one basis to action all of your global payment requests.

If you’d like to action a forward contract, you contact your dealer and purchase your chosen currency forward to a selected date, and agree a rate. You have now secured that rate until your chosen date at a fixed rate, regardless of any market movements. You will then need to provide a deposit dependent on term of contract and amount, upon the execution of the transaction. On the value date (the date when you have chosen to complete), you can either send Hermex the full amount and we will send back the deposit, or you can simply send us the remainder of the outstanding balance.

Is it right for me?

A forward transaction could be right for you and your business if:

  • You’re planning to make a significant purchase in the foreign market
  • You want an option which allows you to secure a rate ahead of time
  • You want to manage fluctuating exchange rates over a particular period in order to mitigate risk
  • You want a contract that ensures you’ll pay the exact amount that was originally calculated

Got a question about forward contracts? Our approachable, knowledgeable dealers will be happy to help. Call us on 0203 026 4030 or email forex@hermexfx.com for more information about any aspect of sending money abroad.

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