Forward Contracts Explained: How Importers Fix Their Rate and Protect Their Margin
Most businesses don’t lose money on foreign exchange because they paid a fraction of a percent too much on a single transfer.
They lose money because there was a gap between the moment they agreed a price and the moment they paid it — and nobody managed what happened in between.
That gap is where forward contracts do their work.
The problem in one example
A UK distributor agrees to buy €500,000 of stock from an Italian supplier. Payment terms are 90 days.
The moment that contract is signed, the business has quoted its own customers, built its margin, and priced its stock — all based on the exchange rate it saw on the day of the deal.
But it doesn’t buy the euros for another three months.
If sterling weakens by 4% over that period, the stock costs roughly £17,000 more than the figure the business planned around. On a product line running a 12% gross margin, a large slice of the profit on that shipment has gone — not because of anything the sales team, the buyer or the supplier did, but because of a currency market the business never intended to participate in.
That’s the point most finance teams miss. You are exposed to the FX market whether you meant to be or not. The only decision available is whether you manage the exposure or accept whatever happens.
What a forward contract actually is
A forward contract is an agreement to buy or sell a fixed amount of currency, at a rate agreed today, for settlement on a date in the future.
That’s it. Three components:
The amount — how much currency you need
The rate — agreed now, not later
The date — when the currency is delivered
You typically place a small deposit (a margin) at the outset, then pay the balance on or before the settlement date. Many providers, Orbis included, offer flexible or “window” forwards that allow you to draw down the currency in stages as invoices fall due, rather than in one lump at maturity.
What a forward contract is not
Three misconceptions come up in almost every first conversation we have:
It’s not a prediction. A forward rate isn’t anyone’s forecast of where the currency is going. It’s derived from today’s spot rate adjusted for the interest rate differential between the two currencies. Nobody at the other end of the trade is guessing.
It’s not a bet. Gambling creates risk that didn’t previously exist. Hedging removes risk that already does. A business with €2m of euro invoices due next year is already carrying a currency position. A forward closes it.
It’s not about beating the market. Businesses that hedge properly aren’t trying to win. They’re trying to know. The value of a forward isn’t the rate you get — it’s the certainty you buy.
When a forward is the right tool
Forwards suit exposures that are known and committed. The clearest cases:
A signed supply contract with fixed pricing in a foreign currency
A confirmed purchase order with payment terms of 30, 60, 90 days or longer
Recurring overseas payroll where the monthly cost is predictable
An agreed acquisition or property purchase with a completion date
Tendering for work where you’ve quoted a fixed price and can’t reprice later
That last one deserves attention. If you’ve submitted a fixed-price tender in a foreign currency and won it, your margin was fixed on the day you quoted. Every day after that, the currency market gets a vote on your profitability.
When a forward isn’t the right tool
Forwards create an obligation. You will buy that currency on that date at that rate. That’s the trade-off for certainty, and it’s the reason forwards don’t suit every situation.
If the underlying transaction might not happen — a bid you haven’t won, a deal that could fall through, a project that may be delayed — a forward can leave you holding currency you no longer need. In those cases a vanilla option is often the better structure: you pay a premium for the right, but not the obligation, to exchange at a set rate. You keep full downside protection and still benefit if the market moves your way.
Similarly, if the rate you want is meaningfully better than the market and your timeline is flexible, a limit order sits in the market waiting for your target level without committing you to anything.
The right instrument depends on how certain the underlying cash flow is. That’s the question to answer first — not “what rate can you get me?”
What does a forward cost?
There are no premiums or upfront fees on a forward. The cost sits in two places:
The forward points. The difference between the spot rate and the forward rate, driven by the interest rate gap between the two currencies. Depending on the pair and direction, this can work for you or against you. Buying euros forward with sterling has, in recent years, often been marginally favourable — a detail plenty of businesses never realise.
The spread. The margin your provider builds into the rate. This is where most FX firms make their money, and it varies enormously.
The second one is worth pressing on. Ask any provider — including us — to show you the spread as a number, not a rate. A provider who won’t quantify their margin is telling you something.
How much of your exposure should you hedge?
There’s no universal answer, but there is a sensible framework:
Rule-based hedging — hedge a fixed percentage of forecast exposure on a set schedule (say, 100% of committed orders and 50% of the forecast pipeline). Predictable, defensible, easy to explain to a board.
Layered hedging — hedge more of the near-term exposure and progressively less of the further-out exposure, adding cover as forecasts firm up.
Opportunistic hedging — hedge partially and leave some exposure open. This requires genuine market monitoring and a clear tolerance for the outcome if it goes against you.
Most SMEs are best served by the first two. The third quietly turns a finance function into a trading desk, usually without anyone deciding that’s what they wanted.
The question to start with
Before you look at a rate, answer these:
What currency payments or receipts are committed over the next 12 months?
What exchange rate is baked into your pricing and budget?
How far could the rate move before your margin becomes uncomfortable?
What proportion of that exposure are you willing to leave unmanaged?
If you can answer those four, you have the beginnings of a currency strategy. If you can’t, you don’t have a rate problem — you have a visibility problem, and no exchange rate will fix it.
William Fuller is Co-Founder and Sales Director at Orbis Exchange Group. Orbis works with businesses across the UK and UAE on international payments, currency risk management and trade finance.
Orbis Exchange Group enters the football market through partnership with Lagom Sports Compliance
Payments and treasury specialist teams up with a football-only compliance advisory to support clubs, agencies and investors managing high-value currency flows under a tightening regulatory regime.
LONDON, 21 August 2026 - Orbis Exchange Group, the global payments and treasury partner with offices in London, Dubai and Los Angeles, has agreed a strategic partnership with Lagom Sports Compliance, the leading governance, risk, compliance and anti-financial crime advisory working exclusively with professional football. The partnership covers mutual client referrals, jointly authored content and a shared presence at sector events and aims to help Orbis further enter into the sports market.
Professional football is a heavily international industry operated, in most cases, by lean finance teams. A mid-table club may settle a transfer fee in euros across three seasons, receive broadcast and sponsorship income in several currencies, pay agent commissions to counterparties in a dozen jurisdictions and draw shareholder funding from an overseas holding company, all without the treasury function a corporate of equivalent turnover would take for granted. The result is avoidable cost, unmanaged currency risk and, increasingly, avoidable regulatory exposure.
Orbis addresses the first two by giving organisations the benefit of a treasury function without the overhead of building one. Rather than tying clients to a single bank or provider, the firm works across a panel of banking, fintech and payment partners, matching counterparties and payment routes to the client's profile, and advising on exposure across the wider supply chain rather than transaction by transaction.
Why football, and why now
The regulatory environment around the sport is changing quickly. In England, the Independent Football Regulator will open its provisional licence application window on 1 November 2026, with the regime binding from the 2027/28 season and around 116 clubs in scope. In the European Union, professional clubs and licensed agents come within the formal anti-money laundering perimeter on 10 July 2029, bringing due diligence, source of funds and transaction monitoring expectations that will be familiar to anyone who has worked in regulated financial services.
Those requirements are evidential rather than presentational. Organisations will need to demonstrate how they satisfied themselves about counterparties and money movements, and the record that demonstrates it is largely a payments record. That is where the two firms' work meets.
What the partnership covers
Orbis will introduce clients to Lagom where licensing readiness, anti-money laundering frameworks or governance capacity is the constraint. Lagom will introduce clients to Orbis where currency exposure, banking infrastructure or payment routing needs attention. The firms will publish co-authored articles across both platforms and attend industry events together. Orbis provides no regulatory or compliance advice, and Lagom provides no foreign exchange or payment services. Each remains responsible for its own scope.
Comment
“Football is a global business, but many clubs and agencies are still expected to manage complex, high-value international flows with relatively small finance teams. We are entering the sector because our role is not simply to execute a transaction; it is to help clients build the right payment, banking and currency-risk structure around it. Lagom’s specialist compliance expertise makes this a genuinely complementary partnership.”
— William Fuller, Co-Founder, Orbis Exchange Group
“Football is a genuinely international business run by small finance teams under intense public scrutiny. Clubs and agencies are about to be asked to evidence their money movements to a standard financial services has lived with for years, and that evidence begins with how payments are structured and routed in the first place. Orbis brings capability to a part of the market that has been under-served, and our clients will benefit from it.”
— Jonathan Greenstein, Co-founder and Director, Lagom Sports Compliance
Orbis offers a no-obligation review of foreign exchange arrangements to organisations across sport and other sectors. The first jointly authored article from the two firms will be published later this year.
About Orbis Exchange Group
Orbis Exchange Group is a global payments and treasury partner with offices in London, Dubai and Los Angeles. The firm provides cross-border payments in more than 130 currencies to over 180 countries, named multi-currency accounts, foreign exchange risk management and lending solutions that finance international and domestic payables. Services are delivered through a panel of established banking, fintech and payment partners, supported by dedicated account management and a platform giving clients full visibility of transfers and incoming payments. Payment and e-money services are provided by appropriately authorised third-party providers. Orbis Exchange Group Limited, company no. 11360185. orbis-exchange.com
About Lagom Sports Compliance
Lagom Sports Compliance is the leading specialist governance, risk, compliance and anti-financial crime advisory firm built exclusively for professional football. Founded by Jonathan Greenstein and Isabel Lemes, the firm advises clubs, agents, investors and competition organisers across the United Kingdom and the European Union on Independent Football Regulator licensing under the Football Governance Act 2025, EU anti-money laundering obligations, UEFA financial sustainability requirements, football agent regulation and operational resilience. Its consultants come from regulated financial services backgrounds. Lagom Sports Compliance is a trading name of Lagom Consultants Limited, registered in England and Wales, company number 15527181. lagomsportscompliance.com
Media contacts
Orbis Exchange Group: William Fuller – williamfuller@orbis-exchange.co.uk
Lagom Sports Compliance: Jonathan Greenstein, jg@lagomsportscompliance.com