A forward contract is an agreement to exchange a set amount of one currency for another at a rate fixed today, for settlement on an agreed future date. Businesses use it to lock in an exchange rate in advance and reduce the effect of currency movements.
General information, not financial, legal, or tax advice. Verify current terms and eligibility with the provider before applying.
How a forward contract works
A forward contract is an agreement between a business and its bank or payment provider to exchange one currency for another at a rate agreed today, with delivery of the funds on a chosen future date rather than immediately. The rate is fixed when the contract is made, so the business knows exactly how much it will pay or receive when the contract settles, regardless of how the market moves in the meantime. The future date can be a single set date or, in a flexible or window forward, any date within an agreed period. This information is current as of 3 December 2025.
Forward rate and spot rate
The forward rate is the exchange rate set in the forward contract for the future settlement date, while the spot rate is the rate for a conversion settled now. The two differ because the forward rate reflects the interest rate difference between the two currencies over the period of the contract, so it can be higher or lower than the current spot rate. The forward rate is not a forecast of where the spot rate will be on the settlement date.
Why it matters to a business
A business that knows it will need to pay a supplier or will receive money in another currency on a future date faces the risk that the rate will move against it before then. A forward contract removes that uncertainty by fixing the rate in advance, which makes budgeting and pricing more predictable. The trade off is that the business cannot benefit if the market later moves in its favour, because it is committed to the agreed rate. Providers may build a margin into the forward rate or ask for a deposit, so confirm the full terms and any cost before entering a contract.
Frequently asked questions
What is a forward contract?
What is the difference between a forward contract and a spot transaction?
Why would a business use a forward contract?
Does a forward contract guarantee the best rate?
Definitions, fees, features, and eligibility change and vary by region. This page was last reviewed on 3 December 2025. Confirm current terms with the provider before applying.