Currency forward contract: the complete guide to securing your SME payments

What is a currency forward contract?

A forward contract is a commitment made today to exchange one currency for another at a future date, at a exchange rate fixed upon signing. In concrete terms: you know, right now, exactly how much you will pay or receive in 30, 60 or 180 days, regardless of how the market behaves in the meantime.

How it works, step by step

Let's look at a concrete example. A French SME imports industrial equipment from a US supplier for USD 200,000, payable in 120 days. At the time of ordering, the EUR/USD rate is 1.08, representing an expected cost of 185,185 euros.

Rather than waiting for the maturity date and suffering the rate of the day, the company signs a forward contract upon ordering: the rate of 1.08 is guaranteed for the delivery of USD 200,000 in 120 days. If the rate falls to 1.02 at maturity, without a forward contract, the actual cost climbs to 196,078 euros — a loss of over 10,800 euros. With the forward contract, the company pays 185,185 euros, period, regardless of the market rate on that day.

The benefits of forward contracts for an SME

No direct upfront cost: unlike a currency option, a forward contract generally does not involve paying a premium. You know the exact amount of your expenditure or receipt, which simplifies your cash flow forecasting and protects your already negotiated commercial margin. It is also the simplest instrument to understand and implement, even for a single transaction.

The limits to be aware of before committing

A forward contract is a firm commitment: unlike a currency option, you cannot benefit from a favourable rate movement in the meantime. If the market moves in your favour, you still pay the rate fixed at the start. It also requires good visibility on the amount and date of the future transaction: it is suitable for a payment or receipt that is already committed, not for a hypothetical scenario.

Forward contract, currency option, swap: how to choose?

A forward contract is not the only hedging instrument: currency options and currency swaps meet other needs, especially when you want to retain flexibility over the amount or take advantage of a favourable market movement. The choice depends mainly on your visibility over the transaction and your risk tolerance.

How to set up a forward contract with OSolto

OSolto, a payment intermediary authorised by the ACPR and registered with ORIAS, assists you in setting up a forward contract tailored to your transaction. A dedicated representative analyses your maturity, your amount and your exposure to offer you a guaranteed rate, without unnecessary jargon. Setup is done online, usually in less than 48 hours for an already identified client.

Do you have an upcoming currency payment? Talk to an OSolto expert to assess whether a forward contract is suitable for your situation.

FAQ: currency forward contracts

Does a forward contract have a cost? No, a forward contract generally does not involve a premium or direct fee: you simply commit to a fixed rate for a given date.

Can a forward contract be cancelled before maturity? This is possible in some cases, but it may incur a cost if the market rate has moved since signing. It is best to define the amount and date precisely before committing.

What is the minimum amount for a forward contract? The amount varies depending on the provider. OSolto adapts to both one-off transactions and regular hedging policies, depending on your volumes.