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Forward Contracts Explained

We would like to remind you of some of the most important terms and conditions that apply to Forward Contracts and, in particular, to any Security Payments which Currencies Direct may require from you.

  1. Failure to Comply. When you enter into a Forward Contract with Currencies Direct, Currencies Direct is committing to deliver a certain amount of currency at a certain price on a specific date or window of dates in the future. During this time Currencies Direct is exposed to the risk of you not fulfilling the Forward Contract on the agreed terms. This is what we call a “Failure to Comply”. This risk is measured by the potential loss Currencies Direct would incur if the Forward Contract had to be sold or bought back into the market due to the Failure to Comply (a “Forward Contract Cancellation”). As market prices constantly move, Currencies Direct re-values the Forward Contract every day to understand the value of that risk.

  2. Security Payment. To off set the risk mentioned above, Currencies Direct requires customers to pay a deposit or security payment equal to a percentage of the total value of the Forward Contract at the time of booking (a “Security Payment”). This Security Payment provides Currencies Direct with a means to mitigate the potential loss incurred in case of any “Failure to Comply”. The Security Payment must be made available to Currencies Direct on a cleared funds basis within 24 hours from the moment the contract is booked over the phone. If funds are not received within 24 hours, Currencies Direct will have the right to close out the Forward Contract and claim any losses incurred in accordance with the terms and conditions (the “Terms”).

  3. Amount of the Security Payment. Initially we require a Security Payment of 10% of the amount of the Forward Contract. Currencies Direct requires the value of the Security Payment to be 10% of the total value of the Forward Contract at any given point in time up until the date of maturity. This means that as markets move, and the Forward Contract is re-valued, Currencies Direct may require additional Security Payments to maintain this security cover. However, because markets move every second and to ensure the process is more convenient for you, Currencies Direct will only require you to make additional Security Payment(s) so that the 10% security cover need only be restored if the value of the Forward Contract moves by more than 5% against you. In this case:

    - Currencies Direct will require the additional moneys to be made available on a cleared funds basis within 24 hours of the additional Security Payment request being made; and
    - Currencies Direct will reserve the right to close the Forward Contract at any given point in time to avoid any potential losses once the Security Payment request has been initiated.

  4. Security Payment and Maturity Date. When the Forward Contract matures, the Security Payment(s) will be used as part-payment of the Forward Contract. In the event of a Failure to Comply, any losses and charges incurred due to a Forward Contract Cancellation will be offset against the Security Payment(s) and any surplus funds refunded to you.

  5. This communication states the current policy of Currencies Direct in relation to Security Payments, but Currencies Direct reserves the right to change this from time to time.

* Please note that the terms referred to in this document apply to Fixed and Open Forwards as well as Time Options.