Non-Deliverable Forward - NDF

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What is a 'Non-Deliverable Forward - NDF'

A non-deliverable forward (NDF) is a cash-settled, short-term forward contract in a thinly traded or nonconvertible foreign currency against a freely traded currency, where the profit or loss at the settlement date is calculated by taking the difference between the agreed upon exchange rate and the spot rate at the time of settlement, for an agreed upon notional amount of funds. The gain or loss is then settled in the freely traded currency.

NDFs are commonly quoted for time periods from one month up to one year; are most frequently quoted and settled in U.S. dollars; and have become a popular instrument for corporations seeking to hedge exposure to foreign currencies that are not internationally traded or whose trade is limited or legally restricted in the domestic market.

BREAKING DOWN 'Non-Deliverable Forward - NDF'

NDFs are usually executed off-shore, meaning outside the home market of the illiquid or untraded currency being hedged. This is because such transactions are often illegal but such regulations cannot be enforced outside of a currency's home market. Such contracts are also popular when the currency fluctuations in the domestic market are limited by the government or central bank, and are not considered a reflection of the currency's true value or expected value at maturity.


All NDFs have a fixing date and a settlement date. The fixing date is the date at which the difference between the prevailing spot market exchange rate and the agreed-upon exchange rate is calculated. The settlement date is the date by which the payment of the difference is due to the party receiving payment. The settlement of an NDF is closer to that of a forward rate agreement (FRA) than to a traditional forward contract.


The largest NDF markets are in the Chinese remnimbi, Indian rupee, South Korean won, new Taiwan dollar and Brazilian real; these are countries that have experienced large amounts of foreign investment and industrialization in recent decades while lagging in financial liberalization. The largest segment of NDF trading takes place in London, with active markets also in Singapore and New York. Some countries, including South Korea, have limited but restricted onshore forward markets in addition to an active NDF market.

The largest segment of NDF trading is done via the U.S. dollar; there are also active markets using the euro, the Japanese yen, and, to a smaller extent, the British pound and the Swiss franc.

Other Non-Deliverable Markets

In addition to the NDF market, there are non-deliverable option and interest rate swap markets in many countries. These have grown especially quickly in South Korea, which is one of the most economically developed markets to still lag in financial liberalization.