Beginner
What a forward contract commits you to
A forward fixes the terms of a future transaction. Understanding the obligation comes before trying to predict the market.
Read articleFOLITIC / FORWARDS TRADING GUIDE
Forwards Trading Guide
Understand forward contracts, interpret quotes and build currency, commodity and portfolio hedges. Follow ten stages from contract basics to advanced valuation, execution and disciplined risk management.
Start with What a forward contract commits you to, then follow the next lesson links. Explore 40 lessons with worked examples, exercises and further reading.
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Forward Contract Foundations
Understand the agreement, its cash flows and the obligations on both sides.
Beginner
Choosing between forwards futures and options
Forwards, futures and options solve different problems. Compare their obligations and cash requirements before comparing their quoted prices.
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Beginner
Physical delivery and cash settlement
Settlement determines what must actually move at maturity. A calculated gain is not always the cash that arrives in the bank account.
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Beginner
Notional amounts maturities and quote conventions
An accurate contract description includes amounts, currencies, units and dates. A familiar currency pair name alone is not enough.
Read articleFX Forwards and Market Quotes
Read currency quotes, settlement dates and the terms that determine the cash result.
Beginner
Outright rates and forward points
Forward points adjust a spot quotation into a price for a later value date. Their sign does not predict the direction of the currency.
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Beginner
Bid and ask prices from the customer side
The correct side of a forward quote depends on what the customer buys or sells. A mid rate is a reference, not a guaranteed execution price.
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Beginner
Value dates tenors and broken dates
A forward rate belongs to an exact settlement date. Holidays, spot lags and nonstandard maturities can change both the quote and the cash planning.
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Beginner
Fixings and non deliverable forwards
A non deliverable forward settles a currency difference without exchanging the underlying currency principals. Its fixing rules are central to the result.
Read articlePricing and Valuation
Separate a new forward price from the value of an existing position.
Intermediate
Cost of carry and a forward price
A forward price can be understood by comparing a future purchase with buying and carrying the asset today. The assumptions determine whether that comparison is usable.
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Intermediate
Covered interest parity for currency forwards
A currency forward links two funding markets. Covered interest parity describes an ideal relationship, not a rule that every retail quote must match exactly.
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Intermediate
Forward price versus the value of an existing contract
The rate written in an existing forward stays fixed while its market value changes. A new forward quote is an input to valuation, not a replacement...
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Intermediate
How spot rates funding and time change a forward
Forward values respond to several inputs at once. A sensitivity worksheet helps distinguish an exchange rate view from a funding or timing effect.
Read articleCurrency Hedging Strategies
Design hedges around real payments, receipts and uncertain business forecasts.
Intermediate
Hedging an importer foreign currency payment
An importer hedge starts with an invoice, not a market forecast. The objective is to control the home currency cost of a known foreign currency payment.
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Intermediate
Hedging exporter receipts
An exporter expecting foreign currency receipts faces the opposite exposure to an importer. The hedge direction should follow the receipt, not the name of the currency...
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Intermediate
Layered hedges and rolling programmes
Layering spreads hedge decisions across time. It can reduce dependence on one dealing date, but it does not guarantee a better exchange rate.
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Intermediate
Forecast uncertainty and overhedging
A hedge can become a new exposure when the business forecast changes. The amount that is likely to occur matters as much as the quoted exchange...
Read articleCommodity and Commercial Forwards
Connect contracted prices with physical supply, delivery quality and changing volumes.
Intermediate
Producer and consumer commodity price hedges
A producer and a consumer can use the same forward agreement for opposite business objectives. The contract fixes a sale price for one and a purchase...
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Intermediate
Delivery quality location and basis risk
Two prices for the same named commodity may represent different exposures. Location, quality, timing and delivery terms can leave a gap after hedging.
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Intermediate
Electricity forwards and power purchase agreements
Electricity forwards and power purchase agreements connect financial prices with physical generation and consumption. The shape of delivery is as important as the average price.
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Intermediate
Seasonal volumes and commodity hedge design
Commodity exposure changes with seasons, production and demand. A hedge should follow the quantity and timing that the business can reasonably support.
Read articleRates Equities and Portfolio Forwards
Apply forward commitments to rates, shares, bonds and global portfolios.
Advanced
Forward rate agreements and settlement conventions
A forward rate agreement manages a future interest period without lending the notional principal. The reference rate and settlement convention determine the cash flow.
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Advanced
Equity forwards dividends and financing
An equity forward combines share exposure with financing and expected distributions. It does not automatically provide the rights of holding the shares today.
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Advanced
Bond forwards coupons and duration
A bond forward refers to a specified future bond transaction. Coupons, accrued interest and financing terms make its price different from a simple spot quote.
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Advanced
Currency overlays for global portfolios
A currency overlay manages exchange rate exposure separately from choosing stocks or bonds. Its result must be evaluated together with the underlying portfolio.
Read articleTrading and Relative Value
Investigate directional positions, carry, basis and maturity relationships.
Advanced
Directional forward trades and realistic costs
A forward can express a directional market view, but the trade begins at the forward rate rather than the spot rate on a news screen.
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Advanced
Carry returns and the risk behind them
Currency carry can produce income in quiet markets and losses during sharp exchange rate moves. Forward points are part of the entry economics, not guaranteed profit.
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Advanced
Cross currency basis and limits to arbitrage
A gap from textbook interest parity can reflect scarce funding, balance sheet costs and market segmentation. It is not enough to compare two attractive screen rates.
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Advanced
Comparing tenors roll costs and curve trades
Different maturities embed different funding periods and risks. A curve trade is a position in their relationship, not simply two opposing trades that cancel.
Read articleCounterparty Collateral and Documentation
Manage credit exposure, cash calls, legal terms and settlement risk.
Advanced
Counterparty default and replacement exposure
A forward can gain market value while becoming harder to collect. Counterparty risk concerns whether the other party can perform when that value is needed.
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Advanced
Master agreements confirmations and netting
Documentation turns a market quote into defined rights and obligations. The master agreement and the trade confirmation perform different jobs.
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Advanced
Collateral margin calls and funding liquidity
Collateral can reduce credit exposure while creating an immediate funding need. A hedge that works economically can still strain available cash.
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Advanced
Settlement risk and payment versus payment
Foreign exchange settlement can expose the full outgoing currency amount. Payment versus payment addresses that principal risk by linking the two transfers.
Read articleExecution and Contract Lifecycle
Compare quotes, reconcile trades and handle changes before maturity.
Advanced
Comparing dealer quotes and execution records
A useful dealer comparison starts with identical obligations. A tighter looking rate may be worse once dates, credit terms and settlement costs are included.
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Advanced
Unwinding a forward before maturity
Closing a forward early requires a valuation and agreement on what is being terminated. An opposite trade can leave two contracts outstanding.
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Advanced
Extending and rolling without hiding a loss
Rolling changes the maturity of an exposure. It does not erase the economic result already accumulated on the original contract.
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Advanced
Amendments novation and break clauses
A changed invoice does not automatically change its hedge. Amendments, novations and break clauses each alter a different part of the contract relationship.
Read articleResearch Risk and Trading Plans
Test ideas, stress cash requirements and build a complete decision process.
Advanced
Validating forward data and historical tests
A historical forward strategy is only as credible as its data and execution assumptions. A smooth chart can hide missing quotes and information that was unavailable...
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Advanced
Stress testing cash requirements and exposures
A useful stress test asks whether the organisation can survive the cash path, not only the final gain or loss. Market moves and delayed receipts can...
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Advanced
Portfolio limits sizing and performance measures
Notional size is one view of risk. A forward portfolio also needs limits for sensitivity, maturity, counterparty concentration and cash requirements.
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Advanced
Building a complete forward hedging or trading plan
A complete plan connects the economic purpose to contract terms, cash capacity and review. The final lesson brings the guide into one practical decision record.
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