Forwards:
A forward transaction does not take place until a time agreed on that is in the future. Once the transaction is agreed upon, the forex deal occurs on the given date regardless of the current market rate. The deal agreed upon in the past is valid. The endurance of the time period can vary from a few days to a few years. The price of the forex investment is paid prior to transfer of ownership.
In general, forwards are not traded within the popular exchanges. There are currently no standards or regulation related to forwards.
Another aspect that comes into play is forward averaging. Forward averaging is related to how the retirement plan payments are distributed over a period of five or ten years. Only qualified applicants who meet requirement and were born before a certain year are eligible for distributions at a lower tax rate than normal payroll taxes.
Futures:
A futures contract involves trading on popular futures exchanges. It is an agreement to purchase specific quantities of commodities or other forex instruments at a specified price and on a date that is agreed upon in advance. Supply and demand laws rule over the pricing of the purchases.
The price at the time of agreement is binding and cannot change in the future regardless of the market price and status. The date of the transfer is called the final settlement date in forex financial terms. The price at the end of the financial trading day that is agreed upon is called the forex settlement price.
Swaps:This is the most common type forex financial transaction. Swaps involve the exchange of currencies for a specified length of time. The transaction is later reverse on a future date.
This is also another financial instrument that is not traded through any foreign exchange.
In general a swap is an OTC (over the counter) forex transaction. There are different types of swaps. Interest rate swaps, credit swaps, equity swaps and currency swaps. The most popular and most employed swap is the interest rate swap.
Another type is the total return swap. Individuals pay the asset’s total return price and the second person in responsible for the interest payments. The return on investment is the gain or loss with the interest and dividends expense added together. This is similar to costing methods.
Spot:
A spot is a transaction that requires only two days to transfer forex ownership. This is much faster than the typical futures contracts that require several months to complete. The exchange of forex investments is direct involving two different currencies and is not contractual. This transaction involves cash with no interest rate. This information was studied by the spot market.
There are forex spot transactions that can be completed in one day. These transactions involve the exchange of US Dollar and Canadian currencies.
