Forward Contracts: Secure Exchange Rates & Protect Your Business
Lamera Capital
2025-08-13
FX Forward Contracts - Lock in Your Rate, Protect Your Profits
An FX forward contract allows you to fix today’s exchange rate for a currency transaction that will occur in the future often up to 12 months ahead. It’s one of the most effective ways to manage foreign exchange risk, giving your business certainty over costs and protecting profit margins from unexpected market moves.
Why FX Forward Contracts Matter
Exchange rates can move sharply in response to economic data, interest-rate changes, political events, or global market sentiment. For businesses with international payments or receipts, these swings can quickly impact costs, revenue, and competitiveness.
A forward contract removes that uncertainty. You agree today on a rate for a future transaction and no matter what happens in the market, that rate is locked in. This lets you:
- Budget accurately for future payments or receipts.
- Protect margins from adverse moves.
- Plan pricing with confidence in competitive markets.
How an FX Forward Contract Works
When you book a forward, you commit to buying or selling a specific amount of currency at a set rate on an agreed date in the future. That rate, the forward rate, is based on:
- The current spot rate.
- The time until settlement.
- Interest rate differences between the two currencies.
Forward contracts can be tailored to your needs, from fixed-date contracts to flexible drawdowns that allow staged payments during the term.
A Real-World Example
A UK importer must pay a US supplier $1,000,000 in six months.
A Real-World Example
A UK importer must pay a US supplier $1,000,000 in six months.
- Today’s rate: £1 = 1.3513 → total cost = £740,000
- The importer books a forward at this rate.
Six months later, the value of the Pound against the Dollar has weakened and the pair trade at £1 = 1.25. Without the forward, the same payment would now cost £800,000.
That’s a saving of £60,000 - simply by locking in the rate in advance.
Beyond Protection: Using Timing to Improve Outcomes
Most FX providers lock in a forward on the day you ask. At Lamera Capital, we use market timing to aim for better starting rates.
We also apply hedging strategies that balance certainty and opportunity:
That’s a saving of £60,000 - simply by locking in the rate in advance.
Beyond Protection: Using Timing to Improve Outcomes
Most FX providers lock in a forward on the day you ask. At Lamera Capital, we use market timing to aim for better starting rates.
We also apply hedging strategies that balance certainty and opportunity:
- Secure part of your annual currency needs (e.g., 50%) via a forward to lock in protection.
- Use the spot market for the remainder, timed around favourable market conditions, key economic data, or technical levels.
This approach means you’re protected against unfavourable moves while still positioned to benefit if rates improve.
Advantages of an FX Forward Contract
Advantages of an FX Forward Contract
- Certainty over costs - Essential for accurate budgeting and cash flow planning.
- Margin protection - Prevents currency volatility from eroding profits.
- Competitive pricing - Allows you to quote and negotiate with confidence.
- Flexible structures - Match payment schedules with contract terms.
- Strategic flexibility - Combine with spot trades for a blended rate advantage.
When to Use an FX Forward Contract
Forward contracts are particularly effective if you:
- Have large future payments or receipts in a foreign currency.
- Operate in low-margin sectors where small rate changes matter.
- Need to set prices months ahead in competitive tenders.
- Have fixed currency obligations tied to contracts or invoices.
Risks and Considerations
While forwards protect against downside moves, they also prevent you from benefiting if the market moves in your favour. That’s why combining forwards with spot market strategies, rather than relying on one approach, can produce better results over the year.
You also need to consider the contract’s settlement obligations. Forwards are binding; you must complete the transaction at the agreed rate and date.
Don’t Let Volatility Decide Your Profit Margin
The FX market is influenced by elections, central bank policy shifts, trade disputes, and global economic data. These factors can cause sudden rate changes that directly affect your bottom line.
In volatile periods, locking in a favourable rate with a forward contract can be the difference between hitting your budget and absorbing an unexpected loss.
Your Next Step
If you have upcoming international currency requirements next month, next quarter, or next year, consider how a forward contract could protect your business.
At Lamera Capital, we:
- Analyse market conditions to lock in at favourable times.
- Design hedge ratios that fit your cash flow and risk profile.
- Blend forward and spot execution to protect margins while pursuing rate improvement.
Bottom line: A forward contract gives you stability. In skilled hands, it can also give you an edge.