Optional Settlement Period
A time window during which a forward contract can be settled at the holder's discretion, rather than on a single fixed date.
An optional settlement period is a feature of certain forward contracts that allows the holder to settle on any business day within a specified window. This flexibility is valuable for businesses that know they will need to exchange currency within a timeframe but cannot pinpoint the exact date. The trade-off is a slightly less favourable rate compared to a fixed-date forward.
How It Works
- Buyer and seller agree on a settlement window rather than a single maturity date
- The forward rate uses the least favourable date within the window for the bank
- The holder notifies the bank when they want to settle, usually giving two business days notice
- If not settled by the window end, the contract settles automatically on the final day
Trading Tips
Use optional settlement forwards when a payment is coming but the exact date is uncertain
Compare the rate against a fixed-date forward to see the cost of flexibility
More common in corporate treasury than retail trading
Related Terms
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