Types of Foreign Exchange Contracts

  • foreign exchange contracts

A specialist Foreign exchange provider will offer a number of contracts and solutions which are ideally for companies or private individuals with a FX need. They offer a number flexible

Spot contract

The Spot contract can be used to buy one currency and sell another for near immediate delivery. Typically, a major currency transferred via this method will be delivered same or next day dependant on the provider settlement terms.

Forward contract

A forward contract or ‘Forward ‘allows the client or individual to fix today’s rate for a deliverable date in the future. The benefit of this contract is that the recipient instantly achieves certainty and knows the cost of his transaction in his original currency. The contract can normally be fixed for anything up to 2 years meaning its ideal for managing a company’s import cost or a property development.  The downside is that the future Spot price may be more attractive on the date of execution. Although the risk averse may still feel very comfortable with the forward contract.

Stop loss

The Stop loss contract allows you to set a minimum acceptable level at which you buy the currency and is ideal if your purchase or investment has a set budget. It is also normally used in tandem with an order (see below), which means you have the opportunity to buy high yet protect yourself if the rate goes against you.

Market or limit order

A Market or Limit order product allows the recipient or company to target a certain rate. When or even if this pre-agreed rate is achievable the currency provider, broker or bank can purchase the currency automatically on behalf of the client and the recipient achieves the rate they set out to.


An Option contract which tends to come with a heavier spread or margin than the other contracts previously covered allows the party to fix a rate similar to the forward contract but also offers the advantage of the holder to opt for a better rate. Therefore, if a rate is agreed at 1.39 but on the planned day of contract execution a rate of 1.3972 is available the party has the right to opt for the improved rate. This can be extremely useful for a large global business and corporation.

By | 2018-04-24T18:51:12+00:00 August 4th, 2016|Forex Guides|0 Comments

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