Forwards

A forward contract in the forex market locks in the price at which an individual can buy or sell a currency on a future date. Also known as an "outright forward currency transaction", "forward outright" or "FX forward".

On the forward forex are two types of tools: forward outright deals and exchange deals or swaps. A swap deal is a mixture of a spot deal and a forward outright deal.

The contract holders are required to buy or sell the currency at a particular price, at a specific quantity and on a definitive future date. Transferring these contracts is not possible.

The forward forex markets are decentralized markets, with entities around the world entering into an array of deals either on a mutual basis or through brokers.

The forward price contains two significant parts: the spot exchange rate and the forward spread. The spot rate is the principle building block. The forward spread, known also as the forward points or the forward pips, is necessary for adjusting the spot rate for specific settlement dates different from the spot date.

According to figures published by the Bank for International Settlements, the percentage of the forward forex market was 57 percent in 1998. Translated into U.S. dollars, out of an estimated daily gross turnover of US$1.49 trillion, the total forward market represents US$900 billion.