Non-Deliverable Forward

A non-deliverable forward, usually shortened to NDF, is a forward contract on a currency that settles in a different, freely convertible currency instead of delivering the one it references. Two parties agree a rate for a future date; on that date, rather than exchanging the two currencies, they settle the difference between the agreed rate and an agreed reference fixing, paid in the convertible currency. The instrument exists because delivery is the part that restrictions block. Where a currency cannot legally be held or transferred outside its home market, an NDF lets both sides take exposure to its rate without either ever needing to hold it, which is why NDF markets grew up around exactly those currencies. Two details define any particular contract and are written into it rather than assumed: which published fixing settles it, and on what date that fixing is taken. A retail-facing instrument referencing such a currency is usually a cash-settled derivative built on the same logic rather than a spot position.