In plain English
What FX forward means
An FX forward fixes the exchange rate now for a payment or receipt that will happen later. It is commonly used by businesses, funds, and institutions to manage currency exposure. The maturity is usually more than two business days, which distinguishes it from spot FX.
Why it matters
FX forwards are a core hedging tool in cross-border finance. They let the user control the exchange rate on a future date, which can make cash flows more predictable, but the contract still carries counterparty and pricing risk.
Example
A Canadian importer knows it must pay USD 500,000 in 60 days. It agrees today to buy dollars forward at a fixed CAD/USD rate for that date. If the spot rate rises before settlement, the importer is protected by the forward. Simplified example.
Quick answers
Common questions
How is an FX forward priced?+
The forward rate is derived from the spot rate and the currencies’ interest-rate relationship over the contract term.
Is an FX forward the same as an FX swap?+
No. An FX forward is one future exchange. An FX swap combines two exchanges with different dates.
Sources