Non-Deliverable Forward Contracts

Much like a Forward Contract, a Non-Deliverable Forward lets you lock in an exchange rate for a period of time. However, instead of delivering the currency at the end of the contract, the difference between the NDF rate and the fixing rate is settled in cash between the two parties.

This is useful when dealing with non-convertible currencies or currencies with trading restrictions.

How does an NDF work?

  1. You agree on the currency pair and the notional amount with your Account Manager.
  2. The NDF rate is agreed upon. The fixing date and the settlement date are chosen.
  3. On the fixing date, the rate from the non-convertible currency’s central bank is checked against the rate in the contract.
  4. Depending on whether the rate has gone up or down, the difference is paid in a settlement currency on the settlement date– this could mean that you receive money from Smart, or that you pay Smart the difference.

Advantages of an NDF

  • NDFs are available in a wide range of currencies and provide means of negating foreign exchange risk in markets where physical delivery is not possible.
  • An NDF works like a regular forward contract, but with no physical delivery of the underlying currency pair.
  • An NDF provides protection against adverse movements in the exchange rate of the currency pair during the term of the contract.
  • The NDF is tailored to your needs – the fixing date and notional amount are chosen by you.

Disadvantages of an NDF

  • An NDF provides no protection against adverse movements in the currency markets at the time of paying the net difference.
  • When an NDF involves emerging market currencies, the markets are inherently less liquid and more exposed to fluctuations than the markets for major currencies.
  • You are unable to participate in favourable movements in the spot rate.
  • Cancellations or adjustments may result in a cost to you.

Why Smart Currency Business, for your business?

  • Manage your currency risk with our fast, secure and reliable services
  • Our experts will guide you every step of the way
  • We won’t charge any commission or transfer fees
  • Your funds are held securely in segregated accounts
  • We are authorised by the Financial Conduct Authority (FCA)

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Option contracts are offered by Smart Currency Options Limited (SCOL) on an execution-only basis. This means that you must decide if you wish to obtain such a contract, and SCOL will not offer you advice about these contracts.

This material provides you with generic and illustrative information and in no way can it be deemed to be financial, investment, tax, legal or other professional advice, a personal recommendation or an offer to enter into an option contract and it should not be relied upon as such. Any changes in exchange rates and interest rates may have an adverse effect on the value, price or structure of these instruments.

SCOL shall not be responsible for any loss arising from entering into an option contract based on this material. SCOL makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.

Foreign exchange options can carry a high degree of risk and are not suitable for everyone as they can have a negative impact on your capital. If you are in doubt as to the suitability of any foreign exchange product, SCOL strongly encourages you to seek independent advice from suitable financial advisers.

Consulting a website or receiving a publication does not constitute a customer relationship and SCOL shall not have any duty or incur any liability or responsibility towards any person or entity as a result thereof.

SCOL is a wholly-owned subsidiary of Smart Currency Exchange Limited, and is authorised and regulated by the Financial Conduct Authority to carry out MiFID business with reference number 656427.

SCOL is a private company limited by shares registered in England and Wales. Company number 9034947. The registered office address is at 26-28 Hammersmith Grove, London W6 7BA.