Hedge Currencies That Can't Move Freely.
Some currencies can't be freely traded outside their home country. A non-deliverable forward (NDF) lets you hedge them anyway, settling the difference in a major currency such as US dollars.
How an NDF Works
- 1
Agree a Rate
You agree a rate today for the restricted currency against, say, USD, for a future date.
- 2
Fixing Date
On the fixing date, the official rate for that currency is published.
- 3
Settle the Difference
The difference between your agreed rate and the fixing rate is paid in USD, one way or the other.
- 4
Offset Your Exposure
That settlement offsets the gain or loss on your actual payment in the local market.
Commonly Traded NDF Currencies
Asia
- INR
- KRW
- TWD
- IDR
- PHP
Latin America
- BRL
- CLP
- COP
Availability depends on the provider.
Window NDFs are also available in many currencies, so you can settle within a period rather than on one fixed date.
Important Risk InformationAn NDF is a binding contract. You may have to pay the difference if the market moves in your favour. The fixing rate may differ from the rate you actually get when converting money locally, so an NDF may not offset your exposure exactly.
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