A deal contingent forward is a specialised forward foreign exchange (FX) contract. The hedging customer is only obliged to fulfil the contract if a planned major transaction, such as an acquisition, occurs.
An example of a forward contract would be a trader who enters into a contract to buy 10 million U.S. dollars in exchange for euros, at a rate of 1.2030, with settlement to occur in three months.
Futures prices change daily due to market fluctuations, and parties may need to make margin payments to maintain a position. Forwards prices remain fixed until the contract is executed, which is a crucial distinction between forwards and futures.
Also called a forward outright, an FX forward, or a currency forward, the outright is a tool that companies that buy goods or services overseas in different currencies can use to lock in favorable exchange rates.