Break Costs

What happens if your plans change?

An illustration of spot or forward contract breakage costs.

Should your commercial circumstances change and you need to terminate your spot or forward contract with Barclays and there may be a “breakage cost”, or gain, which depends on how the prevailing forward rate has changed.

At the time of your entry into an FX transaction, the size of these breakage costs, or gains, on early termination cannot be predicted, as forward rates can increase as well as decrease, by an upredictable amount. Below are two examples to help you understand how the breakage cost or gain is calculated:

Example 1:

1. You sell GBP 1,000,000 and buy USD at a forward rate of 1.3000, equating to USD 1,300,000 for settlement in 30 days
2. 10 days into the contract, you decide you no longer require the USD and request to terminate the contract. A second contract to sell USD and buy back GBP 1,000,000 must be booked at the new prevailing GBP USD forward rate for when the original contract was due to settle. If the GBP USD forward rate has risen to 1.3650, this would equate to USD 1,365,000
3. You will gain/owe the difference between these contracts: in this example, you would owe USD 65,000 to Barclays for settlement 30 days after the date of the original trade¹
4. Table 1 illustrates the cost or gain to you if the exchange rates move by a given percentage when selling GBP1,000,000.

Example 2:

1. You sell GBP 100,000 and buy USD at a forward rate of 1.3000, equating to USD 130,000 for settlement in 60 days
2. 5 days into the contract, you decide you no longer require the USD and request to terminate the contract. A second contract to sell USD and buy back GBP 100,000 must be booked at the new prevailing GBP USD forward rate for when the original contract was due to settle. If the GBP USD forward rate has fallen to 1.1700, this would equate to USD 117,000
3. You will gain/owe the difference between these contracts: in this example, you would gain USD 13,000 from Barclays for settlement 60 days after the date of the original trade.¹
4. Table 2 illustrates the cost or gain to you if the exchange rates move by a given percentage when selling GBP 100,000.

¹Forward contracts are designed to be held for the term of the contract. Breakage costs or gains may also be influenced by factors including bid-offer spreads, credit-worthiness, market liquidity and timing of execution. The breakage costs or gains presented on this slide are purely indicative and should not be taken as a future commitment by Barclays to cancel the transaction at these levels. Further scenarios can be provided on request.

Important information about break costs examples.

Read the ‘Supporting your foreign exchange needs’ brochure PDF† (2.67MB)