How to Book a Forward Exchange Contract: A Step-by-Step Guide

Sarah runs a Melbourne-based fashion boutique and has just placed a large order with a supplier in Italy. The invoice for €50,000 is due in 90 days, and she’s watching the AUD/EUR exchange rate fluctuate daily with growing anxiety. Last week, the rate was 0.62, today it’s 0.65, and she’s worried it could move even higher by the time she needs to pay. This uncertainty is making it impossible to accurately calculate her profit margins and plan her cash flow.

If Sarah’s situation sounds familiar, you’re not alone. Thousands of Australian businesses face this exact challenge every day. The good news? Booking a forward exchange contract (FEC) can eliminate this uncertainty entirely. This comprehensive guide will walk you through the entire process, from initial assessment to final settlement, ensuring you have the knowledge and confidence to protect your business from currency volatility.

Chapter 1: Assessing Your Business Need

Before diving into the mechanics of booking a forward contract, it’s crucial to determine whether an FEC is the right solution for your specific situation. Not every international transaction requires a forward contract, and understanding when to use one is the first step to successful currency risk management.

Identifying Currency Exposure

You have currency exposure if your business has future payments or receipts in a foreign currency. This includes:

Importers: Australian businesses purchasing goods from overseas suppliers with payment terms of 30, 60, or 90 days
Exporters: Companies selling goods internationally who will receive foreign currency payments in the future
Service providers: Businesses paying overseas contractors, freelancers, or software subscriptions in foreign currencies
Property investors: Australians with overseas property commitments or mortgage payments

Timing Considerations

Forward contracts are most beneficial when you have a future payment or receipt that’s at least 2-3 days away. For immediate transactions, you’d typically use a spot contract instead. The ideal timeframe for forward contracts is typically:

1 week to 12 months for most specialist providers
Up to 2 years for major banks
Settlement dates that align with your commercial payment obligations

Risk Assessment Questions

Ask yourself these key questions to determine if a forward contract is appropriate:

Can my business absorb a 5-10% adverse currency movement without significant impact?
Do I need budget certainty for planning and pricing purposes?
Am I comfortable with the opportunity cost if the currency moves in my favour?
Is this a one-off transaction or part of regular international business?

If you answered “no” to question 1 and “yes” to question 2, a forward contract is likely a good fit for your business. For a deeper understanding of the benefits and trade-offs, read our comprehensive guide on the risks of forward contracts.

Chapter 2: Choosing a Regulated Provider

In Australia, forward exchange contracts are classified as financial derivatives under the Corporations Act 2001. This means any provider offering these products must hold an Australian Financial Services Licence (AFSL) issued by the Australian Securities and Investments Commission (ASIC). Choosing a properly regulated provider is not just about compliance – it’s about protecting your business and ensuring your funds are secure.

The AFSL Requirement

Every legitimate forward contract provider in Australia must display their AFSL number prominently on their website and marketing materials. You can verify any provider’s licence status by searching the ASIC professional registers. Never work with an unlicensed provider – this is a significant red flag that could put your business at risk.

Provider Categories in Australia

The Australian market offers two main categories of forward contract providers, each with distinct advantages and considerations:

The Big Four Banks

NAB, Westpac, ANZ, CommBank: Established reputation and comprehensive banking relationships
Minimum transaction amounts: Typically AUD 25,000 or higher
Terms available: Usually up to 2 years
Platform access: Integrated with business banking portals like CommBiz

Specialist FX Providers

OFX, WorldFirst, TorFX, CAFX: Dedicated foreign exchange expertise
Lower minimums: Often starting from AUD 1,000
Competitive margins: Typically offer better exchange rates than banks
Personalised service: Dedicated account managers and expert guidance

For a detailed comparison of both provider types, including fee structures and service quality, see our comprehensive analysis of choosing a forward contract provider in Australia.

Due Diligence Checklist

Before proceeding with any provider, ensure they meet these minimum requirements:

✅ Valid AFSL licence (verify on ASIC register)
✅ Clear fee structure and margin disclosure
✅ Positive customer reviews and industry reputation
✅ Robust online platform or dedicated support team
✅ Appropriate insurance and safeguarding measures

Chapter 3: Requesting a Quote

Once you’ve selected a regulated provider, the next step is requesting a forward contract quote. This process involves providing specific details about your currency needs and receiving a binding rate that you can choose to accept or decline.

Information You’ll Need to Provide

To receive an accurate quote, your provider will need the following information:

Transaction Details

Currency pair: For example, AUD to EUR, USD to AUD, or GBP to AUD
Amount: The exact amount you need to buy or sell (specify which currency)
Settlement date: When you need the currency delivered or when you’ll deliver it
Purpose: Brief description of the commercial reason for the transaction

Your Business Information

Company name and ABN: For business transactions
Trading history: Nature of your international business
Contact details: Phone number and email for quote delivery

Understanding the Quote

A professional forward contract quote will include several key components:

The Forward Rate

This is the exchange rate at which your transaction will be executed on the settlement date. The rate includes the provider’s margin and is calculated based on current market conditions and interest rate differentials between the two currencies. For a detailed explanation of how this rate is determined, see our guide on calculating forward exchange rates.

Quote Validity

Forward contract quotes are typically valid for a short period, often 5-15 minutes for volatile currency pairs or up to 30 minutes for more stable pairs. This time limit reflects the constantly changing nature of currency markets.

Fees and Charges

Transparent providers will clearly outline any additional fees beyond the exchange rate margin. These might include:

Booking fees (often waived for larger transactions)
Settlement fees
Amendment or cancellation charges

Comparing Multiple Quotes

It’s wise to obtain quotes from at least 2-3 providers, especially for larger transactions. When comparing, consider:

Total cost: The all-in rate including fees, not just the headline exchange rate
Service quality: Responsiveness and expertise of the dealing team
Flexibility: Options for amendments or early settlement
Minimum deposit requirements: Some providers require upfront payments

Chapter 4: Understanding the Contract Terms

Before committing to a forward contract, it’s essential to understand exactly what you’re agreeing to. Forward contracts are legally binding agreements, and understanding the terms can save you from costly surprises later.

Key Contract Components

Settlement Date and Amount

The contract will specify the exact date when the currency exchange must take place and the precise amounts involved. This is typically structured as:

You will deliver: AUD 50,000
You will receive: USD 32,500
Settlement date: 15th March 2025
Exchange rate: 0.6500

Margin and Deposit Requirements

Many providers require an initial margin or deposit when you book the contract. This serves as security against adverse market movements and typically ranges from 5-10% of the contract value. For example:

Contract value: AUD 50,000
Initial margin required: AUD 2,500 (5%)
Due at contract booking

Margin Call Provisions

If the market moves significantly against your position, your provider may require additional margin to be deposited. Understanding these terms upfront is crucial for cash flow planning. For a comprehensive explanation of how margin calls work and how to prepare for them, see our detailed guide on forward contract risks and margin calls.

Your Rights and Obligations

Binding Commitment

Once executed, a forward contract creates a legal obligation for both parties. You must:

Deliver the agreed currency amount on the settlement date
Maintain any required margin balances
Accept delivery of the purchased currency

Amendment Options

Most providers offer some flexibility for legitimate business reasons:

Date extensions: Moving the settlement date forward or backward
Partial settlements: Settling portions of the contract early
Close-out options: Cancelling the contract (usually at market rates)

However, these amendments typically come with fees and may result in gains or losses depending on current market rates.

Regulatory Protections

Working with an AFSL-licensed provider provides important legal protections:

Dispute resolution: Access to the Australian Financial Complaints Authority (AFCA)
Compensation scheme: Limited protection under the Financial Claims Scheme
Conduct standards: Providers must meet strict professional and ethical standards

For more information about regulatory frameworks and your rights, see our comprehensive guide on ASIC and AUSTRAC regulations for forward contracts.

Chapter 5: Providing Transaction Details

Once you’ve accepted a quote, your provider will require detailed information to set up the forward contract. This stage involves providing comprehensive transaction details and completing necessary compliance checks required under Australian law.

Commercial Transaction Details

Your provider will need to understand the underlying commercial reason for your forward contract. This isn’t just administrative – it’s a regulatory requirement under Australian anti-money laundering laws. Be prepared to provide:

Purpose of Transaction

Trade transactions: Details of goods being imported/exported, including invoices
Service payments: Description of services being provided or received
Investment activities: Property purchases, portfolio investments, or loan repayments
Personal transfers: Living expenses, education fees, or family support

Supporting Documentation

Most providers will request supporting documents to verify the transaction purpose:

Commercial invoices or purchase orders
Contracts or service agreements
Property purchase contracts
University fee statements

Banking and Settlement Instructions

Your Bank Account Details

You’ll need to provide verified bank account details for both currencies involved:

AUD account: BSB and account number for Australian dollar transfers
Foreign currency account: SWIFT/BIC codes and account details for international transfers
Account verification: Bank statements or deposit slips to confirm ownership

How to find BSB numbers in Australia? Use this comprehensive tool

Beneficiary Information

If you’re sending money to a third party (like a supplier), you’ll need complete beneficiary details:

Full name and address of the recipient
Complete banking details including intermediary banks if required
Relationship to you or your business
Purpose of the payment

Compliance and Identity Verification

Australian providers are required to complete comprehensive Know Your Customer (KYC) and Anti-Money Laundering (AML) checks. For more information on these regulatory requirements, see our guide on ASIC and AUSTRAC obligations.

Individual Customers

Photo identification (driver’s licence or passport)
Proof of residential address (utility bill or bank statement)
Source of funds declaration

Business Customers

Australian Business Number (ABN) verification
Company registration documents (ASIC company extract)
Identification of beneficial owners and authorised signatories
Board resolutions or authority to trade in foreign exchange

Setting Up Online Access

Most modern providers offer online platforms for managing your forward contracts. During the setup process, you’ll typically:

Create secure login credentials
Set up two-factor authentication
Configure notification preferences
Review and accept platform terms of use

Chapter 6: Paying Initial Deposits and Margins

Many forward contract providers require an initial deposit or margin when you book the contract. Understanding these requirements and planning for them is crucial for smooth contract execution and cash flow management.

Understanding Margin Requirements

Initial Margin

The initial margin is a security deposit that protects the provider against potential losses if market rates move against your position. Key characteristics include:

Typical amount: 5-10% of the total contract value
Purpose: Risk management and compliance with prudential requirements
Timing: Usually due within 24-48 hours of contract booking
Return: Credited toward final settlement or returned if contract is closed out

Provider Variations

Different providers have varying margin policies:

Major banks: Often require higher margins (10-15%) but may waive for established customers
Specialist providers: More flexible, with some offering zero-margin products for short-term contracts
CAFX: Offers competitive margin structures with personalised assessments based on contract terms and customer relationship

Payment Methods and Timing

Accepted Payment Methods

Bank transfer: Most common and secure method
BPAY: Available from some providers for smaller amounts
Direct debit: For regular customers with established payment arrangements

Payment Processing Times

Plan for these typical processing times when arranging margin payments:

Same-day transfers: Available for payments made before bank cut-off times (usually 1:00 PM)
Standard transfers: 1-2 business days for most Australian bank transfers
International transfers: 2-5 business days if paying margin in foreign currency

Managing Margin Calls

If market rates move significantly against your position, your provider may require additional margin to maintain the contract. Understanding this process helps you prepare financially and operationally.

When Margin Calls Occur

Market volatility: Sudden significant movements in exchange rates
Time decay: As contracts approach maturity, margin requirements may increase
Credit assessment changes: If your provider reassesses your creditworthiness

Responding to Margin Calls

When you receive a margin call notification:

Review immediately: Understand the amount required and deadline
Contact your provider: Discuss payment options and any flexibility
Arrange payment: Transfer additional margin within the specified timeframe
Consider alternatives: Evaluate whether to close out the contract instead

For detailed strategies on managing margin calls and understanding their implications, see our comprehensive guide on forward contract risks and margin calls.

Record Keeping and Accounting

Maintain accurate records of all margin payments for accounting and tax purposes:

Payment confirmations and bank transfer receipts
Provider statements showing margin balances
Correspondence regarding margin calls and responses
Final settlement statements showing margin applications

Chapter 7: Contract Confirmation and Documentation

Once your forward contract is booked and initial requirements are met, your provider will issue formal contract confirmation and documentation. This paperwork serves as legal proof of your agreement and contains critical information for your records, accounting, and tax obligations.

Contract Confirmation Details

Essential Information to Verify

Your contract confirmation should include all these critical details. Review them carefully and contact your provider immediately if anything appears incorrect:

Contract reference number: Unique identifier for tracking and reference
Currency pair and amounts: Exactly what you’re buying and selling
Exchange rate: The locked-in rate for your transaction
Value date: When the currency exchange will occur
Booking date: When the contract was established
Your details: Name, account numbers, and transaction purpose

Additional Contract Terms

Margin requirements and payment schedules
Amendment and cancellation policies
Default and early termination provisions
Governing law and dispute resolution procedures

Legal Documentation Requirements

Master Agreement

Most providers require you to sign a master agreement that governs all future transactions. This document typically includes:

Terms and conditions: Standard contractual provisions
Risk disclosures: Clear explanation of potential losses and risks
Credit arrangements: Margin and collateral requirements
Default procedures: What happens if either party fails to perform

Product Disclosure Statement (PDS)

ASIC-regulated providers must provide a PDS that explains:

Key features and benefits of forward contracts
Significant risks and potential losses
Fees, charges, and how they’re calculated
Your cooling-off rights (if applicable)
Complaints and dispute resolution procedures

Platform Access and Ongoing Management

Online Trading Platforms

Many providers offer sophisticated online platforms for managing your contracts:

Contract monitoring: Real-time valuation and profit/loss tracking
Market information: Live rates and market commentary
Settlement instructions: Managing payment details and timing
Document library: Access to confirmations, statements, and tax documents

Mobile Applications

Modern providers often provide mobile apps with features such as:

Rate alerts and market notifications
Contract status updates
Quick access to dealing teams
Document upload capabilities

Notification and Alert Systems

Automated Reminders

Set up notifications for important dates and events:

Settlement reminders: 7-day and 24-hour advance warnings
Margin call alerts: Immediate notification of additional requirements
Rate movement alerts: Optional notifications when rates reach certain levels
Document requirements: Reminders for outstanding compliance items

Communication Preferences

Configure how you want to receive important updates:

Email notifications for non-urgent matters
SMS alerts for time-sensitive issues
Phone calls for margin calls or urgent amendments
Platform notifications for routine updates

Chapter 8: Managing Your Contract to Maturity

Successfully managing your forward contract from booking to settlement requires ongoing attention and proactive communication with your provider. This chapter covers best practices for monitoring your position, preparing for settlement, and handling any issues that may arise during the contract term.

Ongoing Monitoring and Valuation

Understanding Contract Valuation

Your forward contract’s value will fluctuate with market movements. Understanding this helps you make informed decisions about your position:

Mark-to-market value: The current profit or loss if you were to close the contract today
Favourable movements: When current market rates are worse than your contracted rate
Adverse movements: When current rates are better than your contracted rate

Remember, these unrealised gains or losses are only paper profits or losses – your contracted rate remains fixed regardless of market movements.

Regular Review Schedule

Establish a routine for monitoring your contracts:

Weekly reviews: Check contract status and any margin requirements
Market updates: Stay informed about economic events affecting your currency pair
Business changes: Assess whether your underlying commercial need has changed
Settlement preparation: Begin planning 30 days before maturity

Handling Contract Amendments

Common Amendment Scenarios

Business circumstances can change, and most providers offer flexibility for legitimate commercial reasons:

Date extensions: When your supplier extends payment terms or delivery is delayed
Amount adjustments: When order quantities change or invoices are amended
Partial settlements: When you need to settle portions of the contract early
Currency changes: When invoice currencies are changed by suppliers

Amendment Process and Costs

When requesting amendments:

Contact your provider: Explain the commercial reason for the change
Provide documentation: Supply evidence of the underlying business change
Understand costs: Amendment fees and any market adjustment gains/losses
Get written confirmation: Ensure all changes are properly documented

Preparing for Settlement

30-Day Settlement Preparation

Begin settlement preparations well in advance:

Confirm funding arrangements: Ensure you have sufficient AUD available
Verify banking details: Check all account information is current and correct
Review commercial requirements: Confirm the underlying transaction is proceeding
Check documentation: Ensure all required paperwork is complete

Settlement Instructions

Provide detailed settlement instructions to your provider:

Payment timing: Specify when you need the currency delivered
Beneficiary details: Confirm recipient banking information
Payment references: Include invoice numbers or other commercial references
Urgency requirements: Indicate if same-day settlement is required

Tax and Accounting Considerations

Forex Realisation Events

The settlement of your forward contract triggers a Forex Realisation Event (FRE) under Australian tax law. This may result in assessable income or deductible losses that must be included in your tax return.

Record Keeping Requirements

Maintain comprehensive records for tax and accounting purposes:

Original contract confirmations and all amendments
Settlement statements and bank transfer confirmations
Underlying commercial invoices and contracts
Correspondence with your provider regarding the transaction

For detailed information about tax implications and record-keeping requirements, see our comprehensive guide on ATO tax implications of forward exchange contracts.

Chapter 9: Settlement and Final Execution

The settlement phase is the culmination of your forward contract journey. This is when the actual currency exchange takes place according to the terms you agreed to weeks or months earlier. Proper execution of this final step ensures you receive the full benefit of your hedging strategy and complete your international transaction successfully.

Pre-Settlement Final Checks

48-Hour Settlement Window

Most providers begin settlement preparations 48 hours before the value date. During this window:

Funding confirmation: Verify you have sufficient AUD funds available
Banking verification: Double-check all recipient bank details are correct
Communication readiness: Ensure you’re available to respond to any last-minute queries
Documentation review: Confirm all supporting paperwork is in order

Final Settlement Instructions

Provide your provider with complete settlement instructions including:

Payment method: How you’ll deliver the AUD amount (bank transfer, existing credit balance)
Delivery instructions: Where the foreign currency should be sent
Timing requirements: Any specific timing needs for your commercial transaction
Reference details: Invoice numbers, order references, or other payment identifiers

Execution Day Process

Morning Settlement Confirmation

On settlement day, your provider will typically:

Send final confirmation: Email or SMS confirming today’s settlement
Provide payment instructions: Details of where to send your AUD
Confirm timing: Cut-off times for same-day processing
Contact availability: Direct numbers for urgent queries

Payment Execution

Complete your part of the transaction by:

Transferring funds promptly: Send AUD before the specified cut-off time
Including correct references: Use the exact reference provided by your provider
Confirming receipt: Notify your provider once payment is sent
Monitoring progress: Track the transfer through your business banking

Foreign Currency Delivery

International Transfer Timing

Once your provider receives your AUD payment, they will execute the foreign currency transfer:

Same-day processing: Available for major currencies when payments are received early
Next business day: Standard for most currency pairs and destinations
2-3 business days: For less common currencies or complex routing

Delivery Confirmation

Your provider should provide:

Transfer confirmation: SWIFT message or wire transfer reference
Tracking information: Details for monitoring the international transfer
Final statement: Complete record of the transaction for your records
Tax documentation: Any required forms for ATO reporting

Post-Settlement Administration

Record Keeping

Maintain complete records of the settlement process:

Final settlement statement from your provider
Bank transfer confirmations for both AUD payment and foreign currency receipt
SWIFT confirmations or international transfer receipts
Any correspondence regarding timing or special instructions

Accounting Entry

Work with your accountant to properly record the transaction:

Contract realisation: Record any forex gain or loss from the original contract rate
Commercial transaction: Book the underlying purchase or sale in your accounts
Tax implications: Ensure proper treatment under ATO forex rules

Evaluating Your Hedge Performance

Effectiveness Assessment

After settlement, evaluate how well your forward contract served its purpose:

Rate comparison: Compare your contracted rate to what the spot rate was on settlement day
Budget impact: Assess whether you achieved the certainty you needed
Process efficiency: Review the booking and settlement experience
Cost analysis: Consider total costs including margins and fees

Remember, the goal of hedging isn’t to outperform the market – it’s to achieve certainty and protect your business from adverse movements. If your forward contract provided budget certainty and allowed you to plan confidently, it was successful regardless of whether you could have achieved a better rate by waiting.

Conclusion & Next Steps

Successfully booking and managing a forward exchange contract requires careful planning, attention to detail, and working with the right provider. By following this step-by-step guide, you’ll be well-equipped to navigate the entire process from initial assessment through final settlement.

Key Takeaways

Preparation is crucial: Assess your needs carefully and choose an AFSL-regulated provider
Documentation matters: Maintain comprehensive records for compliance and tax purposes
Communication is key: Stay in regular contact with your provider throughout the contract term
Plan for settlement: Begin preparation well in advance to ensure smooth execution

Ready to Take the Next Step?

Now that you understand the complete process, you may want to explore these related topics to deepen your knowledge:

Compare your options: Read our detailed analysis of forward contract providers in Australia to find the best fit for your business
Understand the costs: Review our comparison of Big Four bank fees and rates versus specialist providers
Learn from real examples: See how other businesses have successfully used forward contracts in our Australian importer case study
Master the regulations: Ensure full compliance by reading our guide to ASIC and AUSTRAC requirements
Plan for tax time: Understand your obligations with our comprehensive guide to ATO tax implications

For comprehensive information about all aspects of forward exchange contracts, return to our main definitive guide to forward exchange contracts in Australia.

Ready to Get Started?

If you’re ready to explore forward contract options for your business, consider speaking with the experts at CAFX. As a specialist provider with extensive experience in the Australian market, CAFX offers competitive rates, personalised service, and the expertise to guide you through your first forward contract and beyond.

Don’t let currency volatility put your business profits at risk. Take control of your international payments with a properly structured forward exchange contract, and enjoy the peace of mind that comes from knowing exactly what your foreign currency transactions will cost.