How To Take Advantage of Forward Contracts

In this week’s post I discuss forward contracts and how you can use them to your advantage.

What is a forward contract?

A forward contract is a contractual obligation to buy or sell a fixed amount of currency on a future date and at a predetermined exchange rate.

Forward contracts allow you to eliminate currency risk by agreeing an exchange rate into the future. For example, if the Dollar is weak against the Pound, you can agree to buy Dollars at an agreed rate into the future even if the Dollar becomes stronger. You are effectively buying Dollars today at yesterdays rate – something that could save you thousands.

You can setup delivery dates that are matched against your cash flow and provide price protection.

Next week I will discuss how to add to your bottom line using Forex trading.