If your business invoices in one currency and pays suppliers in another, you will meet three terms quickly: spot, forward and limit order. They are not products offered by a single provider; they are standard ways of describing when a currency exchange happens and at what rate. Knowing the difference changes the question you ask a provider from "what is the rate?" to "what rate, on what date, with what obligations attached?"
This guide explains each term in plain language. It does not tell you which one to use, and it does not quote rates, fees or thresholds, because those change constantly and differ between providers. Confirm current terms directly with any provider you are considering.
Why this vocabulary matters first
Currency markets are not a retail shopfront with a single price. According to the Reserve Bank of Australia (RBA), activity in Australia's foreign exchange market arises from the country's international trade and capital flows — that is, from businesses and investors actually moving money across borders, not from speculation alone. The RBA also publishes material on its own role in that market, and its research notes discuss related instruments such as FX swaps turnover and how that turnover moves with cross-border activity.
Two practical consequences follow for an Australian business:
- Timing is part of the price. The rate available today is not the rate available in three months. Any conversation about cost has to include the date money changes hands.
- Each method carries different obligations. A transaction that locks a rate for a future date is a commitment, not an option you can quietly abandon. That distinction is where most misunderstanding occurs.
Spot: the standard transaction at today's rate
A spot transaction is an agreement to buy one currency and sell another at the rate available now, with the exchange settling shortly after the deal is agreed.
In practice:
- You contact a provider, receive a rate, and agree to it.
- You are told the settlement or value date — the date the currencies are actually exchanged.
- You provide the funds and the beneficiary details, and the payment is made.
Spot is the default. It suits a business that knows it needs to pay an overseas invoice now, or that wants to convert overseas receipts as they arrive. The defining feature is that you accept the rate on offer at that moment. If the rate moves against you between your quote and your confirmation, your cost changes.
What to ask: how long the quoted rate is held, what settlement date applies, and what happens if your funds arrive after the cut-off.
Forward: agreeing a rate for a future date
A forward (or forward contract) is an agreement to exchange a specified amount of one currency for another at a rate agreed today, on a date in the future.
It is used when a business has a known future obligation or receipt — a supplier contract payable in 90 days, or a customer invoice due next quarter — and wants certainty about the rate that will apply rather than leaving it to chance.
Three points are often missed:
- It is a commitment. Unlike an order that may never fill, a forward generally obliges you to transact the agreed amount on the agreed date. Ask what happens if your circumstances change: can it be extended, rolled, or closed early, and on what terms?
- The rate is not "today's spot rate". A forward rate is calculated differently from the rate you would receive for an immediate exchange. Providers apply their own pricing. Compare only like with like.
- You may need to provide funds upfront or hold a facility. Whether a deposit, credit line or margin arrangement is required varies by provider and by your business. Confirm this before signing, not after.
A forward removes rate uncertainty; it does not remove the underlying commercial risk that the invoice itself may change.
Limit order: naming the rate you want
A limit order is a standing instruction to execute an exchange if and when the market reaches a rate you specify.
It differs from both spot and forward. There is no certainty that it will execute — if the market never reaches your level, nothing happens, and no currency is exchanged. It is conditional rather than committed.
Limit orders are typically discussed by businesses that have a target rate in mind and are not under immediate pressure to transact. The two questions that matter are how long the instruction stays open, and whether it fills partially or only in full. Both are provider-specific and must be confirmed in writing.
Because a limit order may never fill, it should not be relied on where a payment date is fixed. A business that must pay a supplier on a set day needs certainty about whether the exchange will happen, not just the rate at which it might.
How the three compare
| Spot | Forward | Limit order | |
|---|---|---|---|
| Rate | Agreed now | Agreed now, applied later | Target set now, applied if reached |
| Timing | Settles shortly after agreement | Settles on a future agreed date | Settles if the market reaches your level |
| Certainty of execution | Yes, once confirmed | Yes, subject to the contract | No — may never fill |
| Common use | Paying or converting now | Known future payment or receipt | Optional exchange at a preferred rate |
| Main thing to confirm | Cut-off times, settlement date, funding deadline | Obligations if circumstances change, deposit or facility requirements | Expiry, partial vs full fill, what triggers execution |
Other terms that appear on confirmations
You will also see these without much explanation. Ask your provider to define each one as it applies to your transaction:
- Exchange rate — the price at which one currency is converted into another.
- Spread or margin — how a provider's offered rate differs from the rate it references. This is part of how providers price a transaction, and the method varies.
- Value date / settlement date — the date currencies are exchanged, which may not be the date you click confirm.
- Beneficiary details — the receiving account information. Errors here can delay or misdirect funds regardless of the rate agreed.
- Confirmation — the written record of what was agreed. Keep it and check it against what you understood.
- FX swap — a related instrument discussed in the RBA's FX market material; ask your provider if it forms part of any structure proposed to you.
Checklist before you book anything
- Know the amount, the currency pair, and the date the money is genuinely needed.
- Ask whether the quote is spot, forward or an order — in writing.
- Confirm the settlement or value date, not just the rate.
- Confirm what you must pay, or provide, and by when.
- Ask what happens if your plans change after you commit.
- Check the confirmation matches your understanding before releasing funds.
- Keep records of each transaction and the terms attached to it.
What to verify yourself
This article explains vocabulary, not current market terms. Before acting:
- Confirm current rates, fees and any deposit or facility requirements with the provider directly, and with more than one provider if the amount is material.
- Confirm whether the provider holds an Australian financial services licence or is otherwise authorised for the service you are using, and check its dispute resolution process.
- Confirm the tax treatment of foreign currency gains or losses with a registered tax adviser or the Australian Taxation Office. Treatment depends on your circumstances.
- If the transaction sits inside a broader risk management approach, get advice from someone you engage for that purpose. This is not that advice.
Next steps
Write down the three things you actually know: the currency pair, the amount, and the date the money must arrive. That is usually enough to have a useful first conversation with a provider, and it makes the spot-versus-forward question concrete rather than abstract. If you are comparing providers, you can start with /match/ to see what is available to you, then confirm every term directly before committing to anything.
General information only
This article is general information about business FX terminology. It is not legal, tax, financial, credit or migration advice, and it is not a recommendation of any provider, product or transaction. Australian Cash is not a lender, broker, government body, regulator or comparison panel, and no approval, saving or return is promised. Currency values move, and past movements do not predict future ones. Terms, rates, fees and eligibility change; confirm all details with the relevant provider and with official sources such as the Reserve Bank of Australia before making a decision.