EUS USD forward rates can be defined as the way the forex market is feeling with regards to the future movements of the interest rate between the EUS and the USD. The forex market do this inferring from risk free spot rates. EUS USD forward rates means a situation where by a forex trader can lock in currency exchange rates for a period of one year in advance. It gives forex traders the ability to buy and sell the EUS USD currency at a fixed future date and at a fixed price. In the EUS USD forward rates, the price a forex trader makes on the day of the contract is the price at which the product is transacted at the future without any form of change in it. Therefore, EUS USD forward rates is done regardless of whether there is an increase or decrease in price.
ADVANTAGES OF EUS USD FORWARD RATES
PROTECTION AGAINST RATE FLUCTUATIONS
There is no influence of the currency price by fluctuation and changes. In EUS USD forward rates, the exchange rate are fixed and at any time in the future, have no impact on the increasing and decreasing nature of prices in the forex market. This means that the price bargained for the exchange at one time of the agreement remains the price in another time in the future.
HEDGE AGAINST RISK
For a lot of forex traders, risk management is the sole reason why the engage in anEUS USD forward rates. They use this forward rate medium to hedge against the risk of an upcoming foreign exchange. With this fact, the risk involved and created due to exchange rate fluctuations will be totally eliminated.
BUY NOW, PAY LATER
For forex traders who have no physical cash on them can actually get hold of their currency of choice and they pay for it when they have the money in the future. Aside from this,EUS USD forward rates is a very simple platform to establish because it follows a pre-defined protocol, guideline and agreement.
DISADVANTAGES OF EUS USD FORWARD RATES
In the EUS USD forward rates, there is no immediate obligation imposed on any forex trader. As times goes on, the forward price for delivery on the fixed date of the agreement may change. EUS USD forward rates can gain value can become a liability for either the buying or the selling party and become an asset for one. Because there is no money handed at the initial time of the transaction, the risk of default increases were the buyer may not pay the agreed price for the exchanged currency or the seller may not give out the currency at the agreed price.
In conclusion, EUS USD forward rates include it involves a contractual agreement that must be full filed at the desired data in the future regardless of the fact if the money is available or not.
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