Forward Exchange Rates - Effective Risk Management for your Business

If you are new to forex market, you must be wondering  what are spot rates and future or forward exchange rates? Whenever currency conversion takes place such terminologies are often used. What do these terminologies mean? Spot rates are the rate of currency exchange at the moment, and fluctuate quite a bit over the course of a day. Whereas, forward exchange rates are rates that are quoted today for delivery and payment on some specified date in the future. No currencies change hands on the date the contract is signed for forward exchange transactions. Forward exchange rates and spot rates are actually two methods of trading currency in forex market.

Let's understand Forward exchange rates (also called forward rates) method. In Forward rate contract, two parties made an agreement and fix the currency exchange rate for the transaction which going to be held in the future. Forward rates provide 100% currency hedging for your earned money. The forex company has a team of market analysts who research on the all the factors governing currency rates of the different countries. The major six factors are inflation, interest rates, speculation, change in competitiveness, relative strength of other currencies and balance of payment.

Foreign exchange companies continuously monitor all these factors and design a model which can predict the currency rates of future. Most of the foreign exchange companies are in colloboration with the international banks. Thus they buy foreign currency in a large size at the fix rate. Even if the market foreign exchange rates gets fluctuated thenafter forex companies can still offer best deal for your business transaction. If you have signed a forward contract and locked a rate for the future transaction, you can complete your transaction at any time within the decided period in agreement. Business transactions involves large amount thus currency hedging is a key consideration for overseas money transfer.

Choose for The Business Foreign Exchange Services that suits your Business

Businesses are growing rapidly now a days. The most advanced technology is playing a vital role in the growth of any business or company. Internet has made this global world fascinating and the competition is at its peak in almost every industry. In such scenario, what one wish is to expand their business across the world and put a mark of their success. It is very usual for any business to make overseas payment.  When you make overseas payment, you need to know about the rules and regulation of the foreign countries for money transfer services. In this fast paced technology, will you do all this complex task on your own? Obviously not. Forex companies are offering all these services for your business foreign exchange transaction.

Foreign exchange companies offer 24hr support for any query related to business foreign exchange . Such companies have a team of professional who are masters in predicting the currency exchange rates and recommending the best time to buy or sell foreign currency. This team of professional keep a birdeye on forex market and alert you immediately for any update regarding business foreign exchange. You can make multiple international payment online by sitting in your office only. Forex companies provide tailored package to meet their business customers' requirements. Forex companies offer forward contracts and treasury services to safeguard your business foreign exchange.

Forward contract is an agreement signed between two parties where one is the the person or company obtaining service,known as client, and other is the service provider company;in our case forex company. Both the parties fix a rate for the money transaction of a future date. Client needs to complete the transaction before the agreement expiration date. Client need not to worry about the spot rates of the market at the time of making payment, he/she can make the transaction with the fixed rate. Treasury services are used by businesses to manage their investment and transaction history. Forex companies offer liquidity services and risk management services as a part of treasury services. While choosing for the best business foreign exchange company, select the one which understand the nature of your business and recommend the profitable solutions for your business growth.

Introduction to Foreign Currency Forward Contract

What does foreign currency forward contract mean?  Currency forward contract is an agreement between two parties to exchange two currencies at a fixed currency exchange rate at some point in the future but within 24 months.  There are number of foreign exchange (Forex) services provider companies who offer currency forward services to their clients. But the question may arise in your mind that why one would need this service. Every nation has its own currency rate which represents the economy of the country. These currency rates are governed by many economical factors which continuously changes and in result currency rates changes. Trader exchange two currencies and currency exchange rates changes at every second thus it becomes very difficult for him to predict about the changes in value. Even a small change in currency exchange rate can put trader in a big loss. Thus, the demand for currency forward service is increased.

Currency Forward services provides the perfect business solution for all who want to make international payment. As per currency forward agreement, two parties client (can be a trader or any individual making an overseas payment) and the forex company lock one currency exchange rate for the future transaction. Thus, sometimes it is also known as currency future contract. By opting for currency forward service, one needs not to worry about the fluctuations in currency exchange rates. Client is given a specific period within which he can make the payment at any time provided the exchange rate will remain same as decided in the agreement. This way, client is getting currency hedging service.

Currency hedging offered by the forward contracts agreement not always means that you are protecting your transaction from the possible loss but it may also possible that currency exchange rate of the currencies you are trading increases at the time you make the payment and you may loss a good amount of profit. However, it is better to loss some profit than to incur big losses.

Online Currency Trading - Growing like Wildfire

First of all one needs to know what is currency trading? Currency trading is an activity of buying and selling currency online. A person executing these activities is known as foreign exchange trader or simply trader only. Trader usually exchange one country’s currency with another countries currency and earn profit based on the currency exchange rate difference. All these process is done online which is called online currency trading.

Almost everyone is having an access to internet now a days thus online currency trading has became the most favorable and demanding option among international traders. Because of the ease of performing online trading and chances of earning maximum money, forex market is growing like wildfire. While performing online currency trading most of the traders concentrate on the major currency pairs to lessen the risk factors but one can’t make profit in every transaction he made. However, the assistance of online forex platform can help you to trade securely and minimizing the risk factor.

Online Foreign exchange companies provide forward contract and spot rates agreement to perform secure trading. Forward contract offers 100 percent currency hedging for online currency trading. As per forward contract agreement, trader fixes one rate for the transaction going to be executed on a specific date in future. Even if the market rate fluctuates widely, trader needs not to be stressed about any kind of money loss. But it may happen that currency exchange rate gets a good hike when you sell your currency at the decided rate and you may miss the opportunity to get the higher profit.

As per spot rates contract or agreement, trader purchase and sell the currency within 2 days at the current rate of the market. This current rates are known as spot rates. It is wise to say that forward rates are foreseen spot rates of future. Spot rates agreement also provides currency hedging services but it is a partial currency hedging. It may happen sometime that currency rate changes with a great deficit in a single day only. Because of the security of fund and best foreign exchange rates, online currency trading is enjoying the highest cash flow on earth.

Tips for Beginner in Foreign Exchange Trade Market

The foreign exchange trade is the largest international trading market where transactions worth trillions of dollars each day. As one can easily be a part of foreign exchange trade, just by sitting at home, many people around the world has adopted foreign exchange trading as their hobby. Many traders have been millionaires by selling and buying currency in foreign exchange trade market. This is the only field on this planet where an individual can become millionaires overnight by just performing in foreign exchange trading.

The glory of foreign exchange trade market is not always beneficial to all foreign exchange traders or forex traders. Many people have faced big monetary losses in foreign exchange trade market. If you are a beginner in these filed then it is mandatory to know about the necessary information of the Foreign exchange trade market. You should also gather information that what are the abilities necessary to become a good foreign exchange trader.

The first thing a foreign exchange trader should learn is about currency hedging. There are foreign exchange trade firms available in the market which provides spot rates and treasury services to ensure currency hedging. Spot rates are the foreign exchange rate which is live at the time of order execution. As per spot contracts, the order should be executed within a short duration. Experienced foreign exchange trader always study forex market before few months so they can predict the fluctuations in the spot rates.

A trader can also opt for the treasury services provided by the forex companies and the government sectors. Treasury services are the management services for international payments and liquidity management. Treasury services provide transactions, investment and information services for treasures. Treasury services invest clients’ money and also safeguard it.  A beginner in the foreign exchange trading market must have the detail knowledge of spot contracts and treasury services to perform successful trading and minimize the failure risk.

Which is a Best Deal? Forward Exchange Rates or Spot Rates?

Use of correct strategy and proper money management techniques has delivered a great success to many businessmen who are involved in forex market. Businessmen who often buy or sell currency or assets take assistance of online forex company. With the help of such forex company, every businessman executes overseas transaction with currency hedging. The term “currency hedging” is quite familiar to those involved in forex market.

Currency hedging is a technique which reduces the risk involved any foreign exchange transaction. There are several options available in the market that provides currency hedging service up to various extent. First is forward contract, as per this service a person can lock the rate at which they will sell or buy currency on any date in the future. The agreement is done between the forex company and that person. The rate fixed by the dealer and an individual is widely known as forward exchange rate or forward rate. Forward exchange rates provide 100% currency hedging. As per forward contract service, a person can execute the order within the specified period which can be 1 month, 6 month or a year. The time span to execute payment is predefined between the dealer and an individual while making the agreement.

Another service which offers currency hedging is sport contract. However, sport contracts do not offer 100% currency hedging. A spot agreement means sale and purchase of foreign currency in a very small duration and with the current applicable rate. Forward exchange rates are spot rates of future. To trade with the spot rates, a person needs to analyze the currency fluctuation in market well in advance. Based on his research, a person can predict one rate and execute transaction in a very short duration. However, it may happen that sudden changes occur in the currency rates which can destroy the currency hedging service for your transaction and can put you in loss. It seems that because of the inadequate terms applicable in spot rates, traders are more attracted towards forward exchange rates.

There is one more reason why traders prefer forward exchange rates over spot rates is the time given for execution of payment. In property business, it is not possible to execute payment within 2 days of span.  Forward contract service is widely used by the corporate people who are involved in forex market.