Why a forward contract could save you thousands

Transferring money abroad is something we will all do at one time or another, whether we’re on holiday, buying overseas property, retiring to sunnier climes, or sending money to friends and relatives overseas. When we come to make a transfer abroad, there’s something we all have in common: fees. Bank fees and poor exchange rates can make these transactions costly and you or your payment recipient could be left short changed. Here we’ll focus on how forward contracts can help you save money on these transactions to get the best exchange rate possible.



What is a forward contract?

A forward contract can be set up with an exchange broker, whereby currency can be fixed at a price on a particular day and then purchased at this desirable rate in the future. Will Collins, Head of Private Client Dealing at Baydonhill explains that, ‘Forward contracts allow you to fix that day’s exchange rate up until the time when you are going to need the funds. This is the most secure way of budgeting for the cost of your currency.’


Who does a forward contract benefit?

A forward contract is a great option for anyone who has some time to plan their transfers ahead of time. Specialist currency brokers tend to deal with larger transaction of £3,000+, so a forward contract is a great option for those making regular payments abroad, purchasing a property overseas or making other large payments, perhaps to contractors and employees.


What are the benefits of a forward contract?

Forward contracts can help you plan ahead with your finances allowing you to effectively budget. They can bring you peace of mind for large payments, such as when you purchase a property. Knowing what you will be paying on a given date means you’re no longer at the mercy of the day’s exchange rates.


How do I know when to fix on an exchange rate?

Exchange rates are constantly shifting, so using the given rate on the specific day you decide to transfer money abroad may not always be in your favour or get you the best deal. Finding the best rates might also take you a lot of time and effort. Instead you might wish to use a market order.

A market order works by instructing your currency dealer to proceed to purchase a set amount of currency for you if a certain exchange rate becomes available. According to Will, ‘This is particularly useful if you are not able to take the time to monitor the exchange rate daily, as the deal can be done on your behalf automatically if your target level becomes available.’

Will also suggests using a specialist foreign exchange provider who, ‘will be able to offer you a ‘rate alert’ facility, whereby they monitor the exchange rate on your behalf and contact you when the price is in your favour.’ These two options can take the hassle out of finding the best deal on currency.

The option that’s right for you depends on your own specific situation, the amount you want to transfer and when. There are huge savings to be made when you choose wisely and when you have time to plan ahead. Research you do now can potentially save you hundreds or even thousands of pounds in the long run. Currency brokers will be able to advise the solution to suit you and your needs and help you to get the most out of your hard earned cash.




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