Non-deliverable forward contracts (NDFs) are a type of forward contract, which are used as part of a Risk Management strategy. They can be used as an alternative to a deliverable forward contract when using a certain currency is not available or desirable.

NDFs are more commonly used for emerging market currencies, such as the Chinese Yuan Renminbi Onshore (CNY), Nigerian Naira (NGN), Angolan Kwanza (AOA) and the Indian rupee (INR). 

How non-deliverable forward contracts work

The main difference between NDFs and deliverable forwards is that there is no actual currency exchanged when using an NDF.

On the start date of a non-deliverable forward contract, the amount of currency is agreed with a pre defined forward rate and date when the contract matures. On the due date, we compare the set forward rate (agreed at the start) and the fixing rate (the published reference rate at maturity of the contract). 

On maturity you either pay or receive the difference, which takes place in either euros (EUR), US dollars (USD), British Pounds (GBP) or Swiss Francs (CHF).