Transferring Funds Internationally

Forward Contracts and Limit Orders

Forward Contracts
The risk of exchange rates moving against you can be managed by entering a Forward Exchange Contract (FEC). An FEC is an obligation that allows you to buy or sell a specified amount of foreign currency at a fixed exchange rate (agreed upfront) for settlement at a specified future date. The Forward Exchange Contract effectively locks-in the foreign exchange rate for a future date, eliminating the effect that fluctuations may have on the proceeds of your transfer (for better or for worse).

Forward Contract Example
Assume you like today's exchange rate (or don't want to risk it getting worse) and you will be receiving the British Pound proceeds of your house sale in 60 days which need to be converted to Aussie Dollars:

Day 1: Agree on the exchange rate with your forex provider at which you will convert your Pounds for Aussie Dollars in 61 days. Once the exchange rate is agreed, you won't benefit from British Pound appreciation but you won't suffer depreciation either. Usually you will be required to transfer to your forex provider a deposit of 5-10% of the amount to be transferred.

Day 60: You transfer the agreed British Pounds to your forex provider's account.

Day 61: Your forex provider transfers agreed Aussie Dollars to your account at the pre agreed rate

Forward Contracts give you a known outcome prior to you actually moving funds.

Limit Orders
Exchange rates fluctuate every minute of the day, 5 ½ days a week. The market does not open and close as such, it just moves from London to New York to Asia to London and so on, as they say "Money Never Sleeps".

Most people simply don't have time to watch the market day and night to optimise the exchange rate they secure for transferring funds abroad, and that can mean less money for their new life overseas. One way to beat this problem is to place a 'limit order' with a foreign exchange provider targeting a more advantageous rate.

Whilst limit orders are a great tool for removing stress and heartache from a forex transaction, choosing the right foreign exchange provider is crucial. Some providers will suggest that clients let the dealer choose the transfer rate by claiming that they are experts and can pick a good rate. This is usually a method used by the dealer to maximise the margin taken on the deal. No one can accurately predict exchange rate movements and one should be wary of people who claim they can.

OzForex offers limit orders to clients free of charge. All limit orders are monitored 24 hours a day by our Sydney and London dealing rooms. That means that no matter what time the day or night, OzForex can take care of your forex needs.

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