Forward foreign exchange trading, also known as forward foreign exchange trading, refers to a trading method in which buyers and sellers (at least one of them is a bank) do not make delivery immediately after the transaction, but make delivery on an agreed date in the future (at least after the third business day after the transaction). Foreign exchange bought and sold through forward foreign exchange transactions is called forward foreign exchange or forward foreign exchange, and the exchange rate used is called forward exchange rate.

Forward foreign exchange transactions are completed through contracts (contracts), which are agreements reached between buyers and sellers. Once the contract is signed, both parties must perform it in accordance with the relevant terms of the contract, and cannot break the contract at will. A contract generally includes five aspects: currency, exchange rate, quantity, delivery period and types of foreign exchange (buying or selling at maturity).

Common forward foreign exchange trading terms are 1 month, 2 months, 3 months, 6 months, 9 months and 12 months. Of course, there are also short days and long 1 year, but this is rare in practice.

To sum up, we can sum up the characteristics of forward foreign exchange transactions: namely, three fixings: fixed price (forward exchange rate), fixed quantity and fixed delivery period.

(2) Types of forward foreign exchange transactions

Forward foreign exchange transactions can be divided into two types according to the different delivery dates: forward transactions with fixed delivery dates and selective transactions.

1, fixed delivery date forward transaction

Forward transaction with fixed delivery date refers to forward foreign exchange transaction with fixed delivery date. The characteristic of this kind of transaction is that once the delivery date is determined, neither party can change it at will. What we usually call forward foreign exchange transaction refers to this kind of forward transaction with fixed delivery date.

2. Selective trading

Selective foreign exchange trading means that when doing forward trading, no specific delivery date is specified, only the delivery period is specified. Within the specified delivery period, customers can freely choose the delivery date according to the specified exchange rate and amount.

After signing a trade contract, customers are often unable to determine the specific date of future payment, and can only expect to receive and pay a certain amount of foreign exchange in a certain period of time in the future. In order to prevent losses caused by exchange rate changes in the process of receipt and payment, customers can conduct selective foreign exchange trading for them through banks, so that customers can freely choose the delivery date within the agreed time limit. When doing selective foreign exchange transactions, customers should shorten the uncertain time in the future as much as possible in order to obtain more favorable forward exchange rates.

For example, on April 3, 2003, a company proposed to the Bank of China to buy euros in US dollars. The expected date of external payment is July 7 to August 5, but the exact delivery date cannot be determined at present. The Company conducts selective foreign exchange trading with Bank of China. The delivery date is any banking day from July 7 to August 5, and the forward exchange rate is 1.0728. No matter how the exchange rate changes, the company can choose to buy euros from the Bank of China at the exchange rate of 1.0782 on a bank working day in China from July 7 to August 5.