FX forward
Definition · Level 8 · Rates, FX & macro
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An agreement to exchange two currencies at a rate fixed today, for a date later than spot. Priced from the two interest rates, not from a forecast.
Example
A firm owed €5 million in a year sells the euros forward to fix the dollars it will get.
Where Tradecraft teaches it
Level 8 · Rates, FX & macro, in the lesson “FX forwards, carry and the dollar”: Lock a rate for later, see why the forward is not a forecast, and read carry and the dollar index.
Related terms
- Carry tradeBorrowing in a low-yielding currency to hold a high-yielding one and collect the rate difference; profitable while currency markets are calm…
- Covered interest parityNo-arbitrage link between spot, forward and interest rates: forward = spot × (1 + rquote·t) ÷ (1 + rbase·t).
- DXYUS Dollar Index: the dollar against a basket of six currencies (euro about 58%, then yen, pound, Canadian dollar, Swedish krona, Swiss franc).
- Forward pointsPips added to or subtracted from spot to get the outright foreign exchange (FX) forward rate; set by the interest-rate differential, not by a…
- Spot FXForeign exchange (FX) for immediate delivery: settlement in two business days (T+2) for most pairs, one business day for USD/CAD.
- Uncovered interest rate parityTheory that a higher-yielding currency should depreciate by about the rate gap, so unhedged returns equalize across currencies.