What is a forward contract?

A forward contract is an agreement to buy or sell one currency for another at a rate fixed today, for settlement on a specified future date. It is commonly used by UK businesses to plan around known future receivables or payables, subject to the provider's eligibility criteria and approval.

Does a forward eliminate currency risk entirely?

No. A forward fixes a rate for the contracted amount and date, which removes the uncertainty of not knowing your rate — but it also removes the upside if the rate later moves in your favour. It does not change the underlying commercial exposure, and it is not available to every business or for every currency; it is subject to the provider's standard eligibility and approval process.

Do I need to put down collateral for a forward contract?

Depending on your circumstances and the size and tenor of the contract, margin or collateral may be required as a condition of approval. This is assessed case by case as part of the standard onboarding and risk process.

Is this financial advice?

No. We help you understand the regulated tools available and how they behave in different scenarios, but we do not provide investment or financial advice, and we do not forecast exchange rates. Any decision to use a spot transaction, forward contract or other tool is yours, made with the eligibility and terms confirmed during onboarding.

How do you decide what's right for my business?

We start by mapping your exposures — which currencies, what size, and when the exposure crystallises. We then talk through the tools TimeFX offers and how each would behave in different rate scenarios. The decision is yours; we provide structure and context, not a prediction of rates.

Service

Plan ahead for currency movements, before they affect your margin.

Currency risk management is about reducing how dependent your outcome is on luck. We help UK businesses map their exposures and choose the right regulated tool for each one — clearly, and without predicting where rates will go.

What is currency risk?

Currency risk is the exposure a UK business has to exchange-rate movements between the moment a price is agreed and the moment the related payment is actually converted or settled. It affects any business that invoices, pays or holds value in a currency other than the one it reports in — which, for most UK companies trading internationally, means GBP against whatever currency their suppliers or customers use.

Why rate movements matter to UK businesses

Exchange rates move continuously, for reasons largely outside any individual business's control — interest rate decisions, trade data, political events. If your business agrees a price today but doesn't convert currency until weeks or months later, the rate on the day of conversion can be materially different from the rate on the day you priced the deal. For businesses trading on thin margins, that gap can matter more than almost any other single factor.

Tools available

Spot conversion — convert now, at the rate confirmed at the time
Forward contracts — fix a rate today for a future settlement date, subject to eligibility and approval
Structured solutions, where the shape of the exposure justifies them

All instruments are subject to standard eligibility, credit and onboarding checks. Nothing on this page is financial or investment advice.

Foreign exchange exposure

The three types of FX exposure, and how to identify yours

Before choosing a tool, it helps to know which kind of exposure you are actually carrying. Most UK SMEs are dealing with the first of these.

Transaction exposure

A specific, dated payable or receivable in a foreign currency — a supplier invoice due in 60 days, or a customer payment expected in three months. The exposure runs from the moment the price is agreed, not from the moment the payment is made. This is the exposure forward contracts are usually used for.

Translation exposure

The accounting effect of converting foreign-currency balances or an overseas subsidiary's results back into GBP for reporting. It changes the reported numbers rather than the cash that moves, so it is generally managed through reporting policy rather than through payment timing.

Economic exposure

The longer-term effect of currency movements on competitiveness — a UK exporter becoming relatively more expensive abroad if sterling strengthens, for example. It is structural rather than dated, and is usually addressed through pricing and sourcing decisions rather than a single contract.

How to identify and limit FX exposure in practice

Identifying exposure is a listing exercise before it is a hedging decision. The aim is a simple ladder of what is owed or expected, in which currency, and when — because the figure that matters is the net position per currency and period, not gross turnover. A business that both pays and receives USD in similar amounts and timeframes may be carrying far less net exposure than its USD activity suggests.

List every open foreign-currency payable and receivable by amount, currency and expected date
Include contractual commitments that are not yet invoiced, such as signed purchase orders
Net offsetting flows in the same currency and period before deciding what to cover
Set a tolerance: how much movement between pricing and settlement would materially hurt
Revisit the ladder on a regular cycle, since exposure changes as orders and suppliers change

The FX exposure glossary entry sets out the definitions and a worked example, and managing FX risk without a treasury team covers how smaller finance teams run this without dedicated resource.

Tools businesses actually use

Spot conversion for short-dated or small exposures
Forward contracts to fix a rate for a known future date, subject to eligibility
Multi-currency balances to net inflows against outflows and convert less often
An exposure ladder and review cycle, so decisions are made in advance rather than under pressure

By trading position

Managing currency risk as an importer or an exporter

The mechanics are mirror images of each other, but the practical decisions differ enough to be worth reading separately.

Importers

An importer's cost rises if sterling weakens between agreeing a foreign-currency price and paying it. The usual questions are how far ahead purchase orders are committed, how much of the run to fix, and whether a flexible forward suits shipment dates that can slip.

Read: FX risk for importers

Exporters

An exporter invoicing in foreign currency receives less in GBP if sterling strengthens before the receipt converts. The usual questions are payment-term certainty, whether to invoice in GBP instead, and how to handle receipts that arrive later than contracted.

Read: FX risk for exporters

Illustrative examples

How exposure shows up for importers and exporters

These are simplified, illustrative examples to explain the mechanics — not market data, forecasts or a guide to how rates will actually move.

Importer example (illustrative)

A UK importer agrees to buy stock from an overseas supplier, priced in the supplier's currency, with payment due on delivery in eight weeks. If the rate moves against the importer before payment is due, converting GBP into the supplier's currency becomes more expensive than it would have been on the day the order was placed — squeezing the margin on that order. If the rate moves in the importer's favour, the opposite happens. This illustrates the exposure; it is not a prediction of direction.

Exporter example (illustrative)

A UK exporter agrees a sale priced in a foreign currency, to be paid in ten weeks. If the rate moves against the exporter before the payment is converted back into GBP, the sale is worth less in GBP terms than expected when the deal was priced. If the rate moves in the exporter's favour, the sale is worth more. Again, this illustrates the mechanics of the exposure, not an expectation of which way any particular rate will move.

Why this matters for planning

Neither example above predicts a market outcome. The point is structural: any business with a gap in time between agreeing a price and converting currency carries exposure in that gap. Tools like forward contracts exist to let a business choose, in advance, how much of that gap's uncertainty it wants to carry.

Tools

Spot transactions and forward contracts

Spot transactions

Converts currency at the rate confirmed at the time
Near-immediate settlement
Suits payments you need to make now
Suits exposures too small or short-dated to justify a forward

Forward contracts

Fixes a rate today for an agreed future settlement date
Gives certainty over the cost or value of a known future payment
Subject to eligibility and approval
May require margin or collateral, depending on size and term

Planning ahead

Planning future currency requirements

Currency risk management works best when it starts before a deal is signed, not after. Businesses that map out their expected currency requirements for the coming months — confirmed purchase orders, contracted sales, payroll commitments — are in a much stronger position to decide, calmly, which of those flows are worth fixing a rate for and which are better left to convert at the prevailing rate on the day.

Recurring supplier ordersFix the cost of a known run of future payments
Contracted salesPlan around the GBP value you'll actually receive
Seasonal or project cash flowPlan conversions around the calendar, not in reaction to it

Our approach

A practical, four-step approach

1
Map exposures
Currency, size, timing. A clear inventory of where rate movements between now and settlement would affect your margin.
2
Decide tolerance
A simple reference point — "if the rate moves materially against us between order and payment, that hurts" — that shapes which tool makes sense.
3
Choose tools per exposure
Spot for short or small exposures; forward contracts for known future commitments, subject to eligibility. Structured tools only where the shape of the exposure justifies them.
4
Review regularly
The business changes — new markets, new suppliers, different volumes — so the setup should be revisited rather than left on autopilot.

Be aware

Risks and limitations

Forwards remove upside as well as downside

Fixing a rate protects you if the market moves against you, but it also means you don't benefit if the market later moves in your favour. That trade-off is the point of the tool, not a flaw in it.

Eligibility, margin and approval apply

Forward contracts are not available to every business, or for every currency and term. Eligibility is assessed case by case, and margin or collateral may be required depending on the contract.

This is not advice

Nothing on this page is financial, investment or tax advice, and it is not a forecast of future exchange rates. We help you understand the regulated tools available; the decision to use any of them is yours, made in light of your own circumstances.

FX risk management, with structure and context, not rate predictions

We're upfront about where guidance ends and regulated advice or execution begins.

No rate forecasting
We never predict where currency markets will move. Our role is to structure the conversation, not to call the market.
Regulated instruments only
Spot transactions and forward contracts are delivered under the regulatory framework for UK payment services, with our FCA-authorised payment partner, authorised and regulated by the FCA, subject to standard eligibility checks.
Built around your exposure
Every recommendation starts from your actual currency flows and timing, not a generic product pitch.

Want to talk through your exposure? Apply now or explore our full services overview.

Common questions about currency risk

Related services and guides

Currency risk management usually sits alongside how you actually send and hold money.

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