Forex forward technique
The Forex forward refers to the currency related deal in which the both parties agree to buy and sell a currency at a prevailing rate at any time in future. The deal is signed before certain period due to some trade reasons. This helps the buyer and seller fix the rate of currency and prevent the effects of changing currency rates in the deals. But it will end in losses if a firm agrees to make sales on a specific rate of dollar but in future, if the value of dollar falls, that firm will suffer losses. But this Forex forward technique is also helpful when a firm wants to avoid losses. So the amount of local currency is fixed in exchange of valuable currency like dollar and euro. The limit of such spot agreements is up to sixty days. Its purpose is to hedge the movements of currency rates in future. But deciding for taking forward deal is up to the trader as it may result in loss as well as in benefits. The fortune is involved in this type of contracts. But a good prediction and market analysis may prevent business men from loss attached to Forex forward. The decision of making such a deal must be taken after a thorough investigation. It may suit some traders and may not to some others. The manufacturing and exporting firms usually seek such deals to avoid loss caused by the currency. Such Forex deals can be settled using internet as well. It is basically the selling of a currency for a fixed rate for some limited time period. The transactions of currencies will not be affected with the changing market prices of foreign currencies. This has helped the traders accurately estimate their profits for a specific period of time. The Forex forward can be understood as locking the prices of two currencies which are exchanged for each other. It is also known as forward outright and FX forward. Such contracts must be followed till the end period even if a firm faces loss as the risk is involved in every kind of business. Moreover, forward deals can not be transferred. It is a branch of Forex swap which is a deal of exchanging currency at certain fixed rate for varying period of time. It may be asked here that why a trading company wants to fix an exchange rate for future date? The answer is simple. When the trading firm sells the products in some other country it sometimes sends the goods first and receives the payment later on. In late payments it is possible that the spot exchange rate is high which may seem to be a profit for that firm but when the buyer does not pay at the time of transaction, there are chances for the exchange rate to change. This may bring loss to the sellers. For this reason, a deal is signed by the buyers and sellers to exclude the effects of exchange rate changes from the deal.