Types of Contracts

The Spot Contract is the most basic and popular foreign exchange product. It is an agreement to buy or sell one currency in exchange for another. You have 2 days to settle the contract, at a price based on the prevailing "spot exchange rate" the current value of one currency compared to another.

Although the spot market lets you buy or sell currency as you need it, spot exchange rate movements are highly unpredictable, even during a single trading day. Upon receipt of cleared funds currency is available for onward transmission.

A Forward Contract lets you buy or sell one currency against another, for settlement no later than on the day the contract expires. Unlike spot contracts, a forward contract eliminates the risk of fluctuating exchange rates by locking in a price today for a transaction that will take place in the future (up to a maximum of 2 years).

A 10% deposit is required to secure the contract and is payable within two working days with settlement due on the day the contract expires.

An Option Dated Forward Contract lets you control fluctuating exchange rates by setting a price today for a foreign exchange transaction at a future date. Unlike a regular forward contract, which requires you to complete the transaction on the day it expires, the Option-Dated Forward gives you the flexibility to take delivery of your currency in an agreed time period before the expiry date. This gives you all the advantages of a regular forward contract plus added flexibility of time.

A good example of where this type of contract may be used would be for clients purchasing property with time windows for payment ie. stage payments on a new build.

A 10% deposit is required to secure the contract and is payable within two working days, with settlement due within the agreed time option or before the contract expires.

A Limit Order is an order to secure currency at a specific price that may not be currently available. This type of contract is particularly useful when the markets are moving in a positive direction for you. This is one of the two most common types of orders, the other being a Stop Loss Order.

A Stop Loss Order is used when the market is moving in a negative direction for your currency. An order is placed on file with your broker to help ease the stress of adverse market movements.

A stop loss order instructs your broker to buy when the currency hits a certain point. The purpose of the stop loss is obvious – you want to prevent any further movement before the currency falls any further.