What is a Forward Deal and How Does It Work?

Lock in the Price for a Future Date

easyMarkets offers you multiple ways to trade including forwards, an effective tool to protect your trade against future unpredictable market movements. Forwards allow you to lock in today’s price at a future date, making it a great product to use for hedging. Trade multiple markets from currencies to commodities with easyMarkets.

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Benefits of Forwards

Similar to any other forward or future contract, forward deals in forex also have standard time frames, contract sizes and procedures for settlement.

These contracts are traded on regulated exchanges all over the world and are considered as over-the-counter deals because in forex, there is no centralized location for trading and transactions can take place between two parties via online trading platforms and even over the telephone across various locations all across the globe.

  • One of the most popular methods of hedging.
  • Budget forecast effectively
  • Lower the stress of following daily forex movements
  • They are simple, over-the-counter contracts
  • Up to 30 days maturation, allowing enough time for hedging.
  • Effectively manage account liquidity
  • They offer a complete hedge and price protection
  • Effective risk management tool for future volatility

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What is a Forward Deal and How Does It Work?

Foreign exchange (forex) forward deals are contracts that are used as a hedge when an investor has a commitment to either take or make a forex payment at a specified date in the future. It is essentially a contract between a buyer and seller to either buy or sell a specific currency at a specific spot rate on the specified date. It helps the investor cover or hedge future exchange rate movements, and when the data of the payment and the last date of the forward deal is agreed upon, the investor is said to have “locked in” the forex payment amount.

What this essentially means is that with a forward contract, the seller has set a future forex exchange rate without having to incur any upfront costs. However, one should check with their broker regarding which currencies can be used for forward deals because not all currencies might be offered under such contracts.

How Does It Work?

On entering into a forward contract, the buyer and seller agree to the quantity, price per unit and date on which the currency will be exchanged. On the agreed upon date, the buyer needs to pay the seller the price that they have agreed upon in return for the predetermined quantity of assets. This means that if the spot price is lower than the forward price that had been decided upon in the contract, the seller makes a profit, while the buyer makes a loss. Therefore, when it comes to currency forward deals, the two parties could merely agree to the loss or profit amount rather than physically exchanging currencies.

Why Trade Forwards

easyMarkets is one of the few brokers that actually offers forwards to its retail clients; generally it is a product reserved for institutional clients, banks, brokers and corporations.

Forward options are used when one party wants to perform a transaction at a future date in a foreign currency: for example, if you want to buy something from Japan, but you won’t be charged until a few weeks later. You agreed to pay the person selling you the item 100 USD but their local currency is Yen.

You cannot guarantee that your 100 USD will be worth the same amount of Yen in a few weeks, as it is today. To avoid you paying more or the seller receiving less – a forward contract is created, which in very simple terms locks in the current rate of a currency pair at a future date.

In trading terms, forward contracts are used for hedging reasons – or to help mitigate and manage your risk. Essentially if the price of currency pair drops the trader is fully protected, but does not benefit if the price of the currency pair increases.

Forwards on easyMarkets Platform

In the trading ticket of your easyMarkets platform you may choose your trading type – Day, Forward, Pending Order or Option.

If you select a market from the Market Explorer you will see if it is available to trade as a Forward deal on the ticket.

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Choose your market
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Choose the amount of the trade and how much you are willing to risk
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Set the Forward date
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The stop loss will appear automatically
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Click the SELL or BUY button
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Choose your market
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Choose the amount of the trade and how much you are willing to risk and Set the Forward date
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The stop loss will appear automatically. Click the SELL or BUY button

You can modify your stop loss and set a take profit rate from the section ‘Forward Deals’ below the trading area or ‘My Open Trades’ in the menu . This will modify your amount to risk and your account will be debited or credited accordingly.

Forward Markets to Trade on the easyMarkets Platform

In the trading ticket of your easyMarkets platform you may choose your trading type – Day, Forward, Pending Order or Option.

If you select a market from the Market Explorer you will see if it is available to trade as a Forward deal on the ticket.