How do you lock an exchange rate on a deal that closes in 60 days?

You lock an exchange rate on a deal that closes in 60 days with a forward contract: an agreement signed today with a bank or a foreign exchange broker that fixes the rate at which a stated amount of one currency will be exchanged for another on a stated future date. The alternatives are a currency option, pricing the deal in your own currency, a natural hedge, or settling in a dollar-pegged stablecoin and converting on receipt.

The situation is always the same. You have agreed a price in a currency that is not yours, for a property, a business or a large invoice, and the money arrives at a closing two months away. Between the signature and the closing, the price in the contract does not move, but what it is worth to you does. A forward removes that movement, in both directions, and replaces it with an obligation that you need to understand before you sign.

Rules, providers and documentation differ from one country to the next, and nothing here is financial, legal or tax advice for your own deal. The figures in the worked examples are illustrative: they are chosen to show the mechanism, and they are not current market rates.

What is a forward contract, and what does it fix?

A forward contract is a binding agreement to exchange a fixed amount of one currency for another, at a rate set today, on a date set today. It fixes three things at once: the amount, the rate and the settlement date. Nothing is exchanged on the day you sign, apart from a deposit if the provider asks for one.

Take a seller whose home currency is the US dollar and who has agreed to sell for 2,000,000 euros, payable in 60 days. With a forward, that seller agrees today to deliver 2,000,000 euros to the provider on day 60 and to receive a known number of dollars in return. Whatever the euro does in the meantime, the dollar amount is the one written in the contract.

Three points separate a forward from an ordinary currency conversion.

• It is a commitment, not a right. On the settlement date you must deliver the foreign currency, whether or not your buyer has paid you.
• It is a private contract with one provider. A forward is not traded on an exchange. Its terms are whatever you and the provider agree: any amount, any date, any pair the provider deals in.
• It removes the gain as well as the loss. If the foreign currency strengthens before the closing, the extra goes to no one on your side: you exchange at the contract rate.

Forwards are an everyday instrument. According to the Bank for International Settlements' 2025 Triennial Central Bank Survey, outright forwards accounted for $1.8 trillion of the $9.6 trillion traded each day on foreign exchange markets in April 2025, and the survey describes them as the instrument used to lock in future exchange rates.

How is a forward rate calculated from the spot rate?

A forward rate is the spot rate adjusted for the difference between the interest rates of the two currencies over the life of the contract. A forward rate is not a forecast of where the exchange rate will be: it is the rate at which nobody can profit by borrowing one currency, converting it and depositing the other.

In prose, the formula reads: the forward rate equals the spot rate, multiplied by one plus the interest earned on the quote currency over the period, divided by one plus the interest earned on the base currency over the same period. For a rate written as dollars per euro, the dollar is the quote currency and the euro is the base currency. The interest for the period is the annual rate multiplied by the number of days and divided by the day-count basis, which is 360 days for both the dollar and the euro in money markets.

The logic is simple. Someone holding euros for 60 days earns the euro interest rate. Someone who converts to dollars today earns the dollar interest rate instead. The forward rate is set so that both routes end with the same amount, which economists call covered interest parity. The currency with the higher interest rate is therefore worth less in the forward than at spot, and the currency with the lower rate is worth more.

Two consequences follow for a seller. First, the forward points can work for you or against you, and you do not choose: in the example a seller of euros gets 37 points more than spot, while a seller of a high-interest currency would get less than spot. Second, over 60 days the points are small next to what the spot rate itself can do. The points are a matter of arithmetic; the reason to hedge is the movement of spot.

What does a forward contract cost in practice?

A forward contract has no stated fee in most cases: its cost is the margin the provider builds into the rate, plus the cash you may have to place as a deposit and add to if the market moves. The cost you see on the quote is rarely the whole of it.

The margin in the rate. The provider quotes you a rate slightly worse than the mid-market forward rate, and the gap is its income. Continuing the example, with an illustrative margin of 0.40%, the mid-market forward of 1.1037 becomes a client rate of 1.0993 dollars per euro. On 2,000,000 euros, that margin is worth $8,800. The margin varies with the provider, the currency pair, the size of the deal and how much business you bring, and it is negotiable. The way to see it is to ask for the mid-market spot rate and the forward points at the moment of the quote, and to compare two providers at the same minute.

The deposit. Because a forward is a promise to deliver in the future, the provider takes a credit risk on you. Banks usually cover it with a credit line agreed in advance; non-bank brokers usually ask for a deposit, also called initial margin, expressed as a percentage of the contract. At an illustrative 5%, the deposit on the example contract is $109,930. The deposit is not a fee: it is returned or set against the settlement. But it is cash you cannot use for 60 days.

Margin calls. If the market moves against the contract, the provider may ask for more cash before the settlement date. For a seller of euros, the contract loses value when the euro rises, because the seller has promised to deliver euros at a rate now below the market. In the example, a rise of the euro to about 1.1543 dollars, some 4.9% above the starting spot rate, would make the paper loss on the contract equal to the whole 5% deposit. The provider's terms say at what level a call is made and how many days you have to pay it. A margin call is not a loss in itself, since the euros you will receive are worth more by the same amount, but those euros arrive at closing and the call is payable now.

Ask three questions before you sign: what is the margin in points against mid-market, what deposit is required and when, and at what loss on the contract a further payment is called.

What happens to a forward if the deal slips or falls through?

A forward contract stays in force when the underlying deal is delayed or cancelled: you still owe the provider the foreign currency on the settlement date. The provider did not sell you a rate for your deal; it entered into its own contract with you, and it has usually covered that contract in the market.

If the deal falls through, you have no euros to deliver. The forward is then closed out: the provider reverses it at the market rate of the day and the difference is settled in cash. In the example, the seller has promised to deliver 2,000,000 euros at 1.0993. If the euro stands at 1.1550 on the day, 5% above the starting spot rate, closing out costs 2,000,000 multiplied by the gap of 0.0557, which is $111,400, before the provider's margin on the reversing trade. If the euro has fallen 5% to 1.0450 instead, the close-out produces a gain of $108,600. A hedge on a deal that no longer exists is a plain currency position: it can pay or cost, and you did not intend to hold it.

If the deal slips, the forward is rolled: the original contract is closed at the market rate and a new one is opened for the new date. Two things then happen. The gain or loss on the first contract is settled in cash now, and the new contract is struck near the current market rate. Suppose the closing moves from day 60 to day 90 and the euro is at 1.1550 on day 60. The seller pays the $111,400, and the new 30-day forward, at the same illustrative interest rates and margin, is set at 1.1523, or $2,304,600 on day 90. Net of the payment, the seller ends with $2,193,200, close to the $2,198,600 originally locked. The hedge has held, but the seller had to find $111,400 in cash a month before receiving the sale proceeds. Some providers will roll at the original rate adjusted for the points and carry the loss inside the new contract, which is a form of credit and is priced as such.

What are the alternatives to a forward contract?

The alternatives to a forward contract are a currency option, pricing the deal in your own currency, a natural hedge, settlement in a dollar-pegged stablecoin, or doing nothing and converting at the rate of the day. Each one moves the currency risk somewhere else, or leaves it with you at a different price.

A currency option gives you the right, not the obligation, to exchange at a set rate on a set date. You pay a premium up front, and it is not refunded. If the market is better than your rate at closing, you let the option lapse and convert at the market. If the deal falls through, you owe nothing more.

Pricing in your own currency removes your risk by handing it to the other party: the buyer now has to find a fixed number of your dollars with a currency that moves. A buyer may accept, may ask for a lower price in return, or may hedge on their side.

A natural hedge uses a cost you already have in the foreign currency. A seller who owes a mortgage balance, a tax bill, a broker's commission or a supplier in euros can pay those from the euro proceeds without converting them. Only the remainder is exposed.

Settlement in a dollar-pegged stablecoin needs to be described precisely, because it is often presented as a currency hedge and it is not one by itself. If the price stays in euros and the buyer pays the dollar equivalent of the day in stablecoin, nothing has been locked. A stablecoin protects a dollar-based seller only when the price itself is restated as a fixed dollar amount, which is the previous option with a different payment rail. What the stablecoin adds is settlement that does not depend on banking hours or correspondent banks, and a dollar-denominated balance you can convert when you choose. What it brings with it are three risks of its own: the issuer, which holds the reserves and can freeze tokens at an address; the peg, which can drift from one dollar in a stressed market; and the off-ramp, meaning the exchange or payment firm that turns tokens into money in your bank account, with its own checks, limits and fees. A seller whose home currency is not the dollar still faces the dollar's movement against that currency.

Doing nothing is also a decision. It costs nothing up front and leaves the whole movement of the rate, up or down, in your result.

How much does an unhedged deal gain or lose over 60 days?

An unhedged deal gains or loses the same percentage as the exchange rate moves between signature and closing, applied to the full price. On a 2,000,000 euro price, a 5% move in the euro is worth roughly $110,000 to a dollar-based seller, in either direction.

The worked example uses these assumptions, all illustrative: a price of 2,000,000 euros payable in 60 days; a spot rate today of 1.1000 dollars per euro; a mid-market 60-day forward of 1.1037; and a provider margin of 0.40% applied to every conversion, forward or spot. The forward therefore delivers 2,000,000 multiplied by 1.0993, which is $2,198,600, fixed today. The unhedged seller converts at closing at whatever the spot rate is, less the same margin.

The middle row is worth a second look. Even if the rate does not move at all, the forward pays $7,400 more than waiting, because the forward points are in the euro seller's favour in this example. With the interest rates reversed, the same row would show the forward paying less.

The 5% used here is a round number for illustration, not a prediction. Some currency pairs move less than that in two months, others move more, and the same pair behaves differently from one year to the next. The useful question is not what the rate will do but what a move of that size would do to you: to the margin on the sale, to a loan you must repay in your own currency, to a purchase you have committed to on the other side.

What should you do when the closing date is uncertain?

When the closing date is uncertain, use a forward that can be settled on any day within a window, hedge only part of the amount, or pay for an option. A standard forward has one settlement date, and a closing that moves by three weeks turns a clean hedge into a roll.

A window forward, also called a time option forward or flexible forward, fixes the rate and lets you settle on any business day between two dates, in one or several drawdowns. The price of that freedom is in the rate: the provider usually quotes the least favourable forward rate of the window from your point of view. In the example, a window running from day 45 to day 90 would be priced off the day-45 forward, 1.1027 at mid-market, giving a client rate of 1.0983 and $2,196,600 for the 2,000,000 euros. That is $2,000 less than the fixed-date forward, for a six-week window instead of a single day. A window forward still obliges you to deliver the full amount by the last day of the window.

A staged hedge covers part of the amount now and the rest when the date firms up: for instance half at signature and half when the financing condition is lifted. The second half is done at the rate of that day, so the result is an average, and the part hedged late can also be done over a shorter and more certain period.

An option is the instrument built for a deal that may not happen at all. If the sale depends on a planning permission, a regulatory approval or a buyer's loan, the premium buys protection that costs nothing further when the deal dies. The premium depends on the pair, the period, the strike rate and the market's volatility, and it is quoted on the day.

A fourth route sits in the sale contract rather than with a provider: a clause that adjusts the price if the rate moves beyond an agreed band, or that shares the movement between the parties. It needs the other side's agreement and careful drafting, and it is worth raising with the lawyer or broker handling the sale.

How much of the amount should you hedge?

Hedge the share of the amount that is certain to arrive and that you will actually convert. The rest is either not exposed, or not certain enough to carry an obligation.

Start from the price and take away what never reaches your home currency.

• What will be spent in the foreign currency: a loan repaid at closing, taxes, agent and legal fees, a deposit already paid over, a reinvestment in the same country.
• What may not arrive on the date: a holdback, a retention, an earn-out, a price adjustment decided after closing. Each has its own date and its own uncertainty, and is hedged separately or left open.
• What you would keep in the foreign currency anyway, because you have future costs in it.

What is left is the amount to hedge, and the remaining question is how firm it is. The table below takes the example's 2,000,000 euros and compares the forward on the full amount with a forward on half and with an option on the full amount. The option is a right to sell euros at 1.0993, bought for an illustrative premium of 1.5% of the dollar amount, or $32,979.

The half hedge cuts every movement in two and halves the obligation if the deal fails. The option gives the best result when the euro rises strongly, the second best when it falls, and the worst when nothing happens, since the premium is paid in all three cases. Neither is better in general. The choice depends on how firm the closing is and on which outcome you could least afford.

One caution on the full hedge: hedging more than you will receive is not prudence. If the final price is adjusted down at closing, the surplus of the forward has to be bought in the market at the rate of the day, which is exactly the exposure the hedge was meant to remove.

Who offers forward contracts to small businesses, and what do they ask for?

Forward contracts are offered to small businesses by two families of providers: banks, and non-bank foreign exchange brokers and payment firms. Both sell the same instrument, and they differ in how they take security, what minimum they accept and how fast they open an account.

• Commercial banks cover the credit risk with a credit or dealing line, agreed after a review of your accounts. They expect an existing business relationship, financial statements and signed derivatives terms. A line takes time to approve, and a small or one-off amount may not qualify.
• Non-bank foreign exchange brokers and payment firms cover the credit risk with a cash deposit on the contract, topped up by margin calls. They ask for identity and ownership checks, proof of the underlying deal and the deposit. Each firm sets its own maximum contract length and size, and the safety of your deposit depends on how the firm safeguards client money.
• Private banks and wealth desks take assets held with the bank as security. The service is open to clients with an investment relationship above the bank's minimum, and to them only.

Whatever the family, expect to be asked for the same things: who you are and who owns the business, the document that creates the payment (the sale agreement, the invoice, the letter of intent), the amount and expected date, and the bank account the currency will come from and go to. Providers ask for the underlying document for two reasons. Anti-money-laundering rules require them to understand the transaction, and in several jurisdictions the regulatory status of the forward depends on its being tied to a real payment.

Two practical points apply to a closing. The foreign currency has to reach the provider on the settlement date, so the route of the funds matters: if the proceeds are paid out by a closing attorney, a notary or a settlement agent, ask them early whether they can remit directly to the provider's account and what references they need. And open the account before you need it. Onboarding for a business can take days or weeks, and a rate cannot be locked with a provider that has not finished its checks.

How are forward contracts regulated?

Forward contracts are regulated differently from one jurisdiction to the next, and a forward tied to a commercial payment is often treated more lightly than one entered into as an investment. The provider is almost always a licensed or registered firm, but the protection attached to the contract itself varies.

In the United States, the Treasury Department issued a determination in November 2012 exempting foreign exchange forwards and swaps from most of the requirements that the Commodity Exchange Act places on swaps, including mandatory clearing and exchange trading. Reporting of the trades and business conduct standards for dealers continue to apply. The exemption does not cover currency options or non-deliverable forwards.

In the European Union, Commission Delegated Regulation 2017/565 treats a currency contract as a means of payment, outside the investment rules, when four conditions are met: it is physically settled, at least one party is not a financial counterparty, it is entered into to facilitate payment for identifiable goods, services or direct investment, and it is not traded on a trading venue. The same regulation defines a spot contract as one delivered within two trading days for the major currency pairs. A forward that fails any of those conditions is a financial instrument, with the conduct and reporting rules that follow. The United Kingdom applies a comparable exclusion in its own rules.

The practical reading for a seller is this. A forward that hedges a real sale is commonly a payment contract rather than an investment product, which is why the provider asks for the sale document and may ask you to confirm in writing that the contract is for a commercial purpose. It also means that some investor protections may not apply to it. Three things are worth checking in any country: which authority supervises the provider, how the provider holds or safeguards money you place with it, and whether the contract falls under the investment rules or outside them. Tax and accounting treatment of the gain or loss on a forward is a separate matter, and it belongs with your accountant before the contract is signed, not after.

How does the hedge fit with the way the proceeds are paid out?

A hedge covers the currency of the price; it does not decide who is paid, in what order, or from which account. Those points are settled in the sale documents, and the hedge has to match them.

Three checks keep the two aligned. The amount hedged should be the amount paid to you, not the headline price: commissions, fees and repayments taken at closing in the foreign currency are not yours to convert. The settlement date of the forward should leave room for the funds to travel from the closing to the provider, since an international transfer sent on the closing day may not arrive the same day. And every party paid in a different currency from the price has an exposure of their own: a broker whose commission is a percentage of a euro price and who lives in dollars has the same question as the seller, on a smaller amount.

Where the parties agree to restate the price in dollars and settle it in a dollar stablecoin, the payout itself can be arranged in advance. Shaka is a payment router: each party's share is agreed, and can be signed by each recipient, before the client pays; the client pays once, and every party is paid at the same moment, in a payment that is final. It routes the payment and never holds the funds. It does not lock an exchange rate, and a recipient who converts the dollars received into another currency carries that conversion like any other.

The order of work for a 60-day closing is therefore short. In the first days, work out the net amount that will be converted and how firm the date is. Ask two providers from different families for a quote at the same moment, with the mid-market rate and the forward points shown. Read the terms on deposit, margin calls, rolling and close-out. Then choose between a full forward, a window, a partial hedge or an option according to how certain the closing is, and tell whoever disburses the proceeds where the foreign currency has to go on the day.