Note
Forward contract for a Spanish property purchase
Quick answer
A forward contract fixes an exchange rate today for a payment on a later date. It removes uncertainty but also any gain if the rate moves your way, and it can bind you even if the purchase falls through. Read the terms, and check the provider’s authorisation.
Applies toBuyers who will pay in a currency other than euros some weeks or months from now.
On this page: 11 sections
§ 1The idea
When you agree to buy, you may pay the balance in some weeks or months. If your money is in another currency, the euro price in your currency is uncertain until you convert. A forward contract lets you agree today a rate for converting on a future date, so the cost in your currency is known. This page belongs to the chapter in transferring money for buyers.
§ 2What it costs
A provider may require a deposit or margin when you enter the contract, and may charge a fee or build a margin into the rate. The rate is not simply today’s rate, since it reflects the difference in interest rates between the currencies. Ask for a written quote showing the rate, the deposit and any extra payments if the market moves.
§ 3What you give up
If the euro weakens against your currency after you fix the rate, you will have paid more than you needed. A forward contract replaces uncertainty with a known cost. It does not give you the best rate, and it does not protect against everything.
§ 4When the purchase fails
The contract with the currency provider is separate from the contract with the seller. If the purchase is delayed or falls through, you may still need to complete the currency deal, or close it at the market rate, and bear the loss if the market has moved against you. Ask for the answer before you sign, and ask your lawyer how your private contract treats delay.
§ 5Alternatives
You can convert in parts, convert the certain payments first, or keep a reserve. Some providers offer flexible products that let you choose a date range. Each has its own terms. How currency exchange works explains the costs of exchange.
§ 6Who is allowed to offer it
Currency products are financial services. Ask the provider for its authorisation and the supervisor that oversees it, and check them independently. The rules on banks or currency firms compares banks and firms by criteria.
§ 7Our position
We take no commission from any provider and name none. If that ever changes, the affected pages will say so.
§ 8Before you sign
Read the terms. Ask for a worked example of a gain and a loss. And do not sign under time pressure.
§ 9Questions to ask
Ask for the exact rate, the date of the conversion, any deposit, what happens if the market moves against the contract, what happens if the purchase is delayed, and how to close early. Ask for a written example of both a gain and a loss.
§ 10Take advice
Because a forward contract binds you, take independent advice where the sum is large. Write down the question, the answer and the date, and keep the reply with your purchase file. Ask your lawyer to read anything that affects the amount or the timing, and do not rely on a verbal promise. If two sources disagree, ask for the official text and tell the person in writing which version you are relying on.
§ 11More on this topic
Changing pounds into euros for a purchase explains sending pounds to a Spanish account and changing dollars into euros for a purchase explains sending dollars to a Spanish account.
FAQRelated questions
What does a forward contract do?
It fixes the exchange rate for a conversion you will make on a future date, so you know in advance how many euros your money will buy. In exchange you give up the benefit of favourable movements.
What if the purchase falls through?
You may still be bound to complete the currency deal, and a loss can result if the market has moved against the contract. Ask exactly what happens if the purchase does not proceed, and get it in writing.
Is it regulated?
Providers of currency products are regulated where they operate, and the rules differ. Ask for the authorisation and the terms, check them with the supervisor, and take independent advice if the amount is large.
Financial note. No rate is printed unless it comes from a dated, official publication. Capital is at risk, exchange rates move, and no lender, broker or provider is recommended here. Mortgage terms are set by each lender; ask a registered intermediary about yours.