Forex Investment and Currency Trading

Forward Transactions
If you don’t want to settle a transaction within two business days, you can also trade using an outright forward transaction. In this transaction, you trade one currency for another on a pre-agreed date at some time in the future, but it must be three or more days after the deal date. The forward transaction is a straightforward single purchase or sale of one currency for another.
The exchange rate for a forward transaction usually differs from the rate for a spot transaction because the buyer and seller making the deal know the rates will fluctuate in the future and try to make their best estimate of what the future rate will be. When the forward transaction is executed, the buy and sell price is fixed, but often no money changes hands. Sometimes foreign currency dealers ask customers to provide collateral in advance.

Who Uses Forward Transactions
Companies use outright forward transactions for many different purposes, including future expenditures, hedging, speculating, and investing. One of the most common uses is to plan for a future expenditure.
For example, a U.S. company that knows it will need to pay for parts from a factory in Japan will execute an outright forward transaction to be able to plan for the exact cost of the parts based on the forward transaction price. That way, even if the foreign exchange price changes dramatically, the company can still depend on the agreed price for the parts.