Forward Market | ForexGen Tips

The forward currency market consists of two instruments: forwardoutright deals and swaps. A swap deal is unusual among the rest ofthe foreign exchange instruments in the fact that it consists of twodeals, or legs.26All the other transactions consist of single deals. In its original form,a swap deal is a combination of a spot deal and a forward outrightdeal. Generally, this market includes only cash transactions.Therefore, currency futures contracts, although a special breed offorward outright transactions, are analyzed separately.According to figures published by the Bank for InternationalSettlements, the percentage share of the forward market was 57percent in 1998 (See Figure 3.1). Translated into U.S. dollars, out ofan estimated daily gross turnover of US$1.49 trillion, the totalforward market represents US$900 billion.In the forward market there is no norm with regard to the settlementdates, which range from 3 days to 3 years. Volume in currency swaps longer than one year tends to be light but, technically, there is noimpediment to making these deals. Any date past the spot date andwithin the above range may be a forward settlement, provided that itis a valid business day for both currencies. The forward markets aredecentralized markets, with players around the world entering into avariety of deals either on a one-on-one basis or through brokers. Incontrast, the currency futures market is a centralized market, inwhich all the deals are executed on trading floors provided bydifferent exchanges.Whereas in the futures market only a handful of foreign currenciesmay be traded in multiples of standardized amounts, the forwardmarkets are open to any currencies in any amount. The forward priceconsists of two significant parts: the spot exchange rate and theforward spread. The spot rate is the main building block. The forwardprice is derived from the spot price by adjusting the spot price withthe forward spread, so it follows that both forward outright and swapdeals are derivative instruments. The forward spread is also knownas the forward points or the forward pips. The forward spread isnecessary for adjusting the spot rate for specific settlement datesdifferent from the spot date. It holds, then, that the maturity date isanother determining factor of the forward price. Just as in the case ofthe spot market, the left side of the quote is the bid side, and theright side is the offer side.

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What Is the U.S Dollar Index | ForexGen Tips

If you’ve traded stocks, you’re familiar with all the indices available such as the Dow Jones Industrial Average (DJIA), NASDAQ Composite Index, Russell 2000, S&P 500, Wilshire 5000, and the Nimbus 2001. Oh wait, the last one is actually Harry Potter’s broomstick. Well if U.S. stocks have an index, the U.S. dollar can’t be outdone. For currency traders like us, we have the U.S. Dollar Index (USDX).The U.S. Dollar Index consists of a geometric weighted average of a basket of foreign currencies against the dollar. Come again?! Okay before you fall asleep on us after that super geeky definition, let’s break it down. It’s very similar to how the stock indices work in that it provides a general indication of the value of a basket of securities. Of course, the “securities” we’re talking about here are other major world currencies. The BasketThe U.S. Dollar Index consists of six foreign currencies.

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