Guide · Financement & fiscalité
Forward contracts: locking your rate is not a bet, it is the opposite
Two to four months of currency exposure on a six-figure sum between contract and deed. What a forward contract binds, how to date it, and why waiting for a better rate is the real risk.
Between signing the preliminary contract and signing the deed, two to four months pass. During that time you have a firm commitment in euros and resources in another currency. That gap has a name: it is a currency position, and you carry it without having chosen it.
What a forward contract does, and does not do
It locks today the rate of a conversion that will happen later, on a date you set, against a deposit paid at signature.
It does not seek to win. That is the most common misreading: a forward contract is not a bet on a rise or a fall, it is a tool that removes uncertainty. You will know, from the preliminary contract, what your purchase will have cost you in your own currency. The locked rate will be neither the best nor the worst of the period, and that was not the point.
What it binds
It binds both parties, and that is what to understand before signing. If the sale falls through, you remain bound to buy the euros at the agreed rate. You will then sell them back at the prevailing rate, at a gain or a loss depending on how things moved.
Two rules follow, each in one line.
Hedge only the amount actually due. Property price, acquisition costs, and nothing more. Over-hedging turns a protection into a speculative position.
Set the maturity on the deed’s deadline, not on the hoped-for date. A three-week slip is ordinary in a French acquisition, between the municipality’s reply to the notice of intention to sell and the issuing of the loan offer. Too short a maturity forces a rollover, which costs.
The three strategies, and who each suits
Converting immediately removes the risk and the potential gain with it. It is the route for someone holding the funds from the preliminary contract, and it has the merit of closing the subject.
The forward contract locks the rate without tying up the money. It is the route for the common case: funds arriving later, a sale already committed, a known date.
Staged conversion spreads the exposure across several dates. It removes nothing but it smooths, and it suits those who want neither to lock everything nor bear everything.
Why waiting is the real risk
This is the counter-intuitive point, and it deserves stating plainly. Deciding to wait for a better rate looks like prudence and is not: you are speculating with the money of a purchase already signed, on a calendar imposed by others.
On the day of the deed there is no alternative left: you convert at whatever rate applies. It is the one moment in the entire operation when you have no bargaining power at all, and it is the moment waiting leads you to.
The question of the currency calendar is therefore settled on the day of the preliminary contract, not on the day of the deed. It supposes the accounts are already open, which takes weeks, and knowing who to entrust the conversion to.
One last reflex, unrelated to the rate but from the same file: when the time comes to transfer the euros to the practice, bank details are never taken from an email.
Frequently asked questions
What happens if the sale falls through?
You remain bound to buy the euros at the agreed rate: a forward contract binds both parties. You will then sell them back at the prevailing rate, at a gain or a loss depending on how things moved. That is why you hedge only the amount actually due, never more, and why the maturity is set on the deed's deadline and not on an optimistic date.
Do you pay anything when the contract is signed?
A deposit, usually, securing your commitment until maturity. Its amount depends on the provider, the currency and the term. It is not a fee: it is deducted from the sum due on conversion day. Also ask what happens if the rate moves sharply against you during the period, some contracts providing for a top-up.
Is it better to convert at once or in stages?
It depends on one thing: when your funds are available. If you hold them from the preliminary contract, converting at once removes the risk and closes the subject. If they arrive later, a forward contract locks the rate without tying up the money. Staging is a compromise for those who want neither to lock everything nor bear everything, and it reduces exposure without removing it.