Spot rate vs forward contracts: which is better for you?
Posted by Sarah Ebrahem on May 14th, 2025.
When it comes to making international payments, whether you’re purchasing a property abroad, funding a relocation, or sending money to loved ones, currency exchange rates can have a big impact on your overall costs.
Two of the most common transfer options for managing foreign exchange are spot rates and forward contracts, and each has its own advantages depending on your goals and timeframe. In this article, we’ll explore how they work, and which is the right fit for your currency transfer.
What is a spot rate?
The spot rate is the current exchange rate at which one currency can be exchanged for another. It’s the rate you’ll get if you want to send money abroad immediately or within a very short timeframe, typically one to two working days.
Spot transfers are ideal if you’re happy with the rate on offer and want to get your money moving quickly. They’re simple, fast and flexible, perfect for making urgent payments or taking advantage of favourable market movements.
For example, if you’ve just secured a property abroad and need to transfer your deposit right away, using the spot rate could get the job done swiftly and efficiently.
What is a forward contract?
A forward contract, on the other hand, allows you to lock in a specific exchange rate for a future date, typically up to two years in advance. This means you know exactly how much you’ll get, regardless of any currency fluctuations that occur in the meantime.
This can be particularly useful if you’re planning a large transfer in the future, such as paying the final instalment on a property or sending money overseas regularly. By fixing the rate in advance, you can protect yourself from market volatility and avoid nasty surprises.
Let’s say you’ve agreed to purchase a property abroad, but completion isn’t due for another six months. If the pound (GBP) weakens during that time, the property could end up costing you significantly more in Sterling. With a forward contract, you lock in the current rate and protect against future volatility.
Spot rate vs forward contract – pros and cons
Spot rate
The spot rate is a good option if you need to send money quickly and want a simple, no-fuss process. It lets you take advantage of favourable exchange rates straight away, and there’s no deposit required.
The downside is that you’re fully exposed to market fluctuations. If rates drop suddenly, there’s no protection, which can make it hard to budget or plan ahead with confidence.
Forward contract
A forward contract offers more certainty by letting you lock in an exchange rate for a future transfer. This fixed rate makes budgeting easier and protects you from any negative shifts in the market.
Simply pay a small deposit and with TorFX you can fix an exchange rate for up to two years.
However, the key downside to forward contracts is that you could miss out if the exchange rate strengthens after you’ve fixed a rate.
Which is better for you?
The right choice depends on your individual circumstances and tolerance to risk.
If you’re making a one-off, immediate payment and are happy with the current rate, a spot transfer is likely the most convenient and efficient option. It’s quick, straightforward and allows you to strike while the iron’s hot.
However, if your payment is scheduled for the future, or if you’re nervous about potential currency swings, a forward contract offers valuable protection. It allows you to lock in your rate and plan ahead with confidence, even if the market becomes unpredictable.
In fact, for larger international transfers, many people prefer forward contracts for the reassurance and stability they provide.
How TorFX can help
Navigating the foreign exchange market doesn’t have to be complicated. At TorFX, we offer both spot rates and forward contracts to suit your needs, whether you’re making a fast payment or planning ahead for a major life change.
Our experienced account managers can walk you through your options, helping you make a choice based on your financial goals and timeline. We offer competitive exchange rates, no transfer fees, and expert guidance every step of the way.
Whether you’re sending funds today or locking in a rate for the future, we’re here to make the process simple, secure and stress-free.
Ready to get started? Speak to our team today!
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