What is the Difference Between a Forward Rate and a Spot Rate?

The market operates around the clock Monday to Friday. A swap trade consists of two legs: Take your skills to the next level No matter where you're starting from, we've got what you need to power your potential. Forwards with value dates that do not conform to these straight dates are sometimes called odd date forwards. Trade with a Global Market Leader in Forex Trading Trade over 80 currency markets plus, gold and silver Access trading platforms built to meet the needs of serious currency traders; desktop, mobile and web Maximize your potential with competitive spreads and exceptional trade executions Automatically earn Cash Rebates the more you trade. Scheduled maintenance tasks will begin 5pm ET on Friday September 14 and could last to market open on Sunday September By Steven Nickolas Updated May 25, —

The forward rate and spot rate are different prices, or quotes, for different contracts. The forward rate is the settlement price of a forward contract, while the spot rate is the settlement price of a spot contract.

Forward Swaps

With currency futures, the price is determined when the contract is signed and the currency pair is exchanged on the delivery date , which is usually some time in the distant future. In the spot FX, the price is also determined at the point of trade, but the physical exchange of the currency pair takes place right at the point of trade or within a short period of time thereafter. However, it is important to note that most participants in the futures markets are speculators who usually close out their positions before the date of settlement and, therefore, most contracts do not tend to last until the date of delivery.

What is the difference between trading currency futures and spot FX? By Matt Lee Updated March 28, — In the forex FX market, rollover is defined as the process of extending the settlement date of an open position by rolling The forex market is the largest market in the world.

The spot rate shows the cost of executing a financial transaction today, while the forward rate provides the cost of executing A forward transaction in the foreign exchange market is a contractual agreement to take part in a currency transaction on a date other than the spot value date at a specific rate of exchange. More on the spot transaction.

Also known as a forward outright contract, forward contract or forward cover, a forex forward transaction generally involves buying one currency and selling another at the same time for delivery at a particular rate on the same date other than spot. The Interbank forward market generally trades for standardized value dates, sometimes called straight dates, like one week, one month, two months, three months, six months, nine months and one year from the spot date.

Forwards with value dates that do not conform to these straight dates are sometimes called odd date forwards. They are used by many bank customers who may ask for forward contracts with dates tailored to their specific hedging needs. The forward prices for odd dates are usually determined from the pricing for the surrounding straight dates that can be readily obtained from the market.

The forward value or delivery date is simply the agreed upon date for mutual delivery of the currencies specified in a forward contract. The spot rate , or spot price , is the current price of the asset quoted for the immediate settlement of the spot contract. For example, say it's the month of August and a wholesale company wanted immediate delivery of orange juice, it will pay the spot price to the seller and have orange juice delivered within 2 days.

However, if the company needs orange juice to be available at its stores in late December, but believes the commodity will be more expensive during this winter period due to a higher demand than supply, it cannot make a spot purchase for this commodity since the risk of spoilage is high.

Since the commodity wouldn't be needed until December, a forward contract is a better fit for the investment. Unlike a spot contract, a forward contract is a contract that involves an agreement of contract terms on the current date with the delivery and payment at a specified future date.

Contrary to a spot rate, a forward rate is used to quote a financial transaction that takes place on a future date and is the settlement price of a forward contract.

However, depending on the security being traded, the forward rate can be calculated using the spot rate. For example, say a Chinese electronic manufacturer has a large order to be shipped to America in one year.

Clear & competitive pricing

In this article, we highlight the key differences between a spot versus a forward foreign exchange and how to hedge against currency fluctuations. Spot Foreign Exchange A spot foreign exchange rate is the rate of a foreign exchange contract for immediate delivery (usually within two days). Receive Real Time Observed FX Rates For Spot, Outrights, Forward Swaps And Non-Deliverable Forwards. Contact Us Today For Trustworthy Forex Data. Forex investors may engage in trading currency futures, as well as trade in the spot forex market. The difference between these two investment options is subtle, but worth noting. The difference between these two investment options is subtle, but worth noting.