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A forward rate is the currency exchange rate at which one currency can be exchanged for another currency for settlement some time at an agreed future date.
Clients can use forwards to hedge their currency risk by using a forward contract. A forward contract allows clients to lock in an exchange rate today for a transfer some time in the future. You are therefore immune to price movements in the currency markets during this time. The forward rate reflects the difference between the spot rate and the agreed upon future maturity date. This difference is referred to as the "forward points" which is established in part by the interest rate differential of the two currencies and the time to maturity. A foreign exchange contract purchase does not necessarily require full payment, however, a small deposit is common practice as well as further payments before the maturity date of the contract.
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