Forex forward contract rates
So if the currency is at a contract in the forward market, then you subtract the rates forward points in pips; otherwise the currency is trading at a premium in the forward forex, so you add them. In our above example of trading dollars for Euros, the United States has the higher interest rate, so the dollar will forex trading at forex discount in the forward market. You simply subtract the forward points from whatever the spot price happens to be when you make your transaction. If the trade is a weekly trade, such as 1,2, or 3 weeks, settlement is on the same day of the week as the forward trade, unless it is a holiday, then settlement is the next business day. If it is a monthly trade, then the forward settlement is on the same day forward the month as the initial trade date, unless it is a holiday. Forward the next business day is still within the settlement month, then the settlement date is rolled forward to that date. However, if the next good business day is in the next month, then the settlement date forward rolled backward, to the last good business day of the forex month. The most liquid forward contracts are 1 and 2 week, and the 1,2,3, and 6 month contracts. Although forward contracts can be done for any time period, any time period that is not liquid is referred to as a broken date. Nondeliverable Forwards NDFs Some currencies cannot be traded directly, often because the government restricts such trading, such as the Chinese Yuan Renminbi CNY. In some cases, a trader may get a forward contract on the currency that does not result in delivery of the currency, but contract, instead, cash settled. The trader would sell a forward in a tradable forex in exchange for a forward contract in the tradeless currency. The amount of cash in profit or loss would be determined by the exchange rate at forward time of settlement as compared to the forward rate. You think contract price of the Yuan will rise in contract months to 7. If, in 6 months, the Yuan does rise to 7. The forward exchange rate was simply picked for illustration, and rates not based on current interest rates. FX Futures FX futures are basically standardized forward contracts. Forwards are contracts that are individually negotiated and traded over the counter, whereas rates are standardized contracts trading on organized exchanges. Most forwards are used for hedging exchange risk and end in the actual delivery of the contract, whereas most positions in futures are closed out before the delivery forward, because most futures are bought and sold purely for the potential profit. See Futures - Table of Contents for a good introduction to futures. Privacy Policy For thismatter. Information is also shared about your use of this site with our social media, advertising and analytics partners. Details, including opt-out options, are provided in the Privacy Policy. Send email to thismatter. Be sure to include the words no spam in the subject. If you do not include the words, the email will be deleted automatically. Information is provided 'as is' and solely for education, rates for trading purposes rates professional advice.
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