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Australian Financial Services (AFS) Licence 246566

Forward Deals

What are forward deals?

A forward deal is a contract where the buyer and seller agree to buy or sell an asset or currency at a spot rate for a specified date in the future (usually up to 60 days). Forward contracts are conducted as a way to cover (hedge) future movements in exchange rates. Margin spreads are higher than in Day Trading but no renewal fees are charged.

What is the difference between forwards and futures?

The main difference between forwards and futures is the way they are settled.

Forwards are settled at the close of the deal. Futures are settled at the end of each day. This is called “mark to market”. Daily changes are settled each day until the end of the deal. If there has been a move in the market that causes a loss, the trader is asked to deposit to cover the loss.

The terms and conditions of futures have tight controls put on them in the market.

Forward trading with easyMarkets

Forward trading with easyMarkets is easy. Here are the steps you take:

  1. Choose the buy currency and the sell currency – the exchange rate appears automatically called the Spot Rate
  2. Choose the forward date. The Forward Points and the Forward Rate appears automatically.
  3. Choose the amount of the deal and the amount you want to risk. The Stop-Loss rate appears.
  4. Read the “Response Message” – this tells you if you have enough in your account to make the deal
  5. You can freeze the rate for a few seconds to give you some time to decide if you want to accept.
  6. Press the “Accept” button – your deal is open and running.

You have made sure of the exchange rate for the date you choose. Nothing can change that.

What happens next?

What happens next depends on the deal you made. Here is an example of a possible deal:

You purchase a forward deal, buying USD 10,000 and selling euros, dated 60 days from today at USD 1.0700 per euro. You risk EUR 200. The Stop-Loss rate is 1.0900.

Let’s see what happens when the deal ends, using different exchange rates:

  • The EUR/USD exchange rate reaches 1.1000 sometime before the settlement date. In this case, the deal has already closed at your Stop-Loss rate of 1.0900. You have lost 200 euro, the amount you risked.
  • The EUR/USD exchange rate at the settlement date is 1.0800. In this case you lose just EUR 100.
  • The EUR/USD exchange rate at the settlement date is 1.0200. You have made a profit of EUR 500!

Note: Forward trading is not available in all regions.

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