When making foreign exchange transactions for cross-border payments, businesses often need to manage cash flow and the settlement of currency conversions. At times, circumstances arise where the settlement date of an FX transaction needs to be adjusted. In this article, we will explore the process of changing or extending settlement dates and explain how a Roll to Forward order can help achieve this.
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What is a Roll to Forward Order?
A “Roll to Forward” order is a request from a customer to a financial institution to extend the settlement date of a foreign exchange contract, such as a spot trade or a maturing forward contract, to a future date. The process involves closing the original contract and rebooking it with a new settlement date at the current market rate. Any gains or losses from market changes during this process are offset when the original trade is settled.
When Would You Use a Roll to Forward Order?
There are several situations in which you might need to roll a trade forward, some of them are:
You Need More Time to Settle a Spot Trade: You may have booked a spot trade but realise that you need extra time to complete the contract settlement. For example, you might have a daily limit on your bank account, preventing you from settling the full amount within the original timeframe. In this case, rolling the spot trade forward allows you to push the settlement date to a future date, giving you the necessary time to complete the transaction.
Incorrect Currency Forecasting: Perhaps you forecasted your currency requirements incorrectly, and there is a balance remaining on your forward contract. Instead of settling the contract immediately, you can roll it forward, extending the settlement to a future date when you actually need the currency.
Adjusting a Maturing Forward Contract: If you have a forward contract that is nearing its maturity date but you aren’t ready to settle, rolling the contract to a future settlement date helps align the trade with your updated financial needs.
Delays with Shipments or Manufacturing: Unexpected delays in shipments or manufacturing can disrupt your plans for using the purchased currency. In such cases, you might not need the currency by the original settlement date. Rolling the contract forward allows you to adjust the settlement to a future date when your goods or services are ready, ensuring the currency is available when needed without settling prematurely.
How to Instruct a Roll to Forward Order
The process of instructing a roll to forward order may vary depending on the platform you are using. Some banking platforms, such as Lloyds Bank Arena and Barclays BARX, offer a built-in “roll to forward” function that allows users to manage FX contract extensions directly.
For customers of Rutland FX, who are typically business owners and not currency traders, we understand that handling settlement dates and currency management can be time-consuming and complex. That’s why we take care of the process on your behalf. To roll a spot trade or a forward contract, simply contact your account manager, and we will handle the roll for you.
Rolling a Trade Forward: Costs and Considerations
Rolling a trade forward usually involves costs, which are determined by the swaps market at the time of the roll. These costs may affect the original exchange rate. If applicable, any costs will be explained to you before the roll is completed.
If the cost is minimal, we typically absorb it on your behalf. However, for significant changes or large transaction amounts, we may need to pass the "roll" costs onto you.
How Long Can You Roll a Trade For?
In theory, you can roll a trade indefinitely. However, this may not be practical, as the swaps costs will accumulate over time, especially depending on the currency pair involved. At Rutland FX, forward contracts can be booked up to 12 months in advance. If you reach the end of the 12-month period and still require more time, we can often extend the contract further, provided there’s a legitimate, non-speculative reason for the extension.
It’s also important to note that we require an initial margin to keep your forward contract open, and maintenance margin may be needed if the forward contract moves against you. This helps ensure your positions are covered in the event of unfavorable market shifts.
A Roll to Forward order offers flexibility for businesses needing to adjust the settlement dates of foreign exchange contracts. Whether extending a spot trade or forward contract, the process involves closing the original trade and rebooking it with a new settlement date. While trades can be rolled indefinitely, rising swap costs make longer durations less practical. At Rutland FX, forward contracts can be extended up to 12 months, with the possibility of further extensions when needed, ensuring businesses can manage their currency needs effectively.
Still not sure?
If you are still unsure or have any further questions, please call us on 0203 026 0112 or request a callback to discuss your requirements.