Glossary entry

Forward contract

A forward contract is an agreement to exchange a set amount of currency at a rate fixed today, on a date in the future. It gives certainty about the rate, which is why businesses use it to plan around a known bill, but it also creates an obligation: you cannot benefit if the market later moves in your favour, and cancelling may cost money. Terms, deposits and fees differ between firms, so ask the provider to explain every condition in writing before you agree. See also: spot rate, rate lock, and the guide Using a Rate Tool and Rate Alerts Wisely.