Key takeaways
- A forward fixes the exchange rate for a future date.
- It protects a known payment or receipt from currency moves.
- You give up any gain if the rate moves in your favour.
- Some providers ask for a deposit when you book.
How a forward contract works
You agree three things with a provider today: the currency pair, the amount and the date. On that date, the conversion happens at the agreed rate, whatever the market rate is by then.
A simple example
A Canadian importer owes a US supplier US$250,000 in three months. Today’s USD/CAD rate is about 1.40, so the payment costs roughly C$350,000. If the Canadian dollar weakens by 3% before the payment is due, it would cost about C$10,500 more. A forward locks a rate close to today’s, so the cost can’t rise.
Fixed and window forwards
| Type | When the money moves |
|---|---|
| Fixed (closed) forward | On one agreed date |
| Window (open) forward | Any time within an agreed period, in one or more parts |
What it costs
The forward rate isn’t exactly today’s rate. It includes an adjustment for the interest-rate difference between the two currencies, plus the provider’s margin. Many providers also ask for a deposit, often a percentage of the amount, when you book.
When to use one
- You know the amount and the date of a future payment or receipt.
- A currency move could hurt your margin or budget.
- You prefer certainty over the chance of a better rate.
Providers that can help
Fixed and window forwards, options and limit orders
Forward contracts for up to 12 months
FAQs
Is a forward contract a good idea for small businesses?
It can be, when you have a known foreign-currency payment or receipt and a move in the rate would hurt your budget. It gives certainty, at the cost of missing out if the rate moves in your favour.
Can I cancel a forward contract?
Usually not without cost. Because the provider has locked the rate, closing a forward early generally means settling any difference between the agreed rate and the market rate.
Do I need to pay a deposit?
Many providers ask for a deposit when you book a forward, often a percentage of the amount. Ask each provider for its terms.
Which providers offer forward contracts in Canada?
Corpay offers forwards, options and limit orders, and OFX offers forward contracts for up to 12 months. Compare them on Treasi’s FX page.
Sources: Corpay and OFX published product information; Bank of Canada daily exchange rates.