FX Hedging Products Comparison

Spreads: Forward contracts, future contracts and currency options charge close to interbank spreads, but do have the following built-in or explicit commissions and other special charges:
Interest differential: All hedging methods charge an interest differential on the currencies, either built into the rate offered or as a separate amount charged.
Interest risk premium: Interest risk premium is a variable amount charged by the issuing party for potential changes in interest rates.
Commissions: Forward contract and option contract suppliers build commissions into their products based upon how much they can charge the buyer. The commission is built into the forward rate or included in the amount paid upfront for an option (it is also called the premium).
Volatility charge: Options are one-sided contracts which cost an upfront premium to purchase. Options offer the right, but not the obligation, to engage in a future transaction. An estimate of the future volatility of the foreign currency over the life of the option is built into the option pricing. While an individual option may incur a large payout, other options will expire without being exercised.

Early exit: Forward contracts require break costs if you exit early. You risk market uncertainty by selling a future contract, or selling/exercising a currency option.
Extensions beyond expiry date: Bank accounts and currency spot have no expiry dates. The other products will require you to enter into new hedging contracts or risk currency fluctuations between the expiry date and when the foreign exposure is settled.
Hedge exact amount: Contracts and options only offer fixed lot sizes. Currency spot and bank accounts allow you to hedge to the nearest unit. Forward contracts in theory may be structured to exact amounts, although often the amounts are not precise.
Change Amount: You can change the hedging amount by any amount for bank accounts or currency spot. For contracts and options, you can only add or sell/exercise a fixed lot size.

All hedging options require either upfront cash, or require necessary credit arrangements with the counterparty. A bank account requires the largest amount of upfront cash (the full hedge amount). Currency options must be purchased upfront with cash. Forwards will only be offered as part of your overall credit arrangement with the supplier, and any resulting forward contracts will reduce your available credit lines. Future contracts and currency spot hedging will require adequate margin amounts to cover the necessary credit requirements.