The term "outrights" is used in the forex (FX) market to describe a type of transaction in which two parties agree to buy or sell a given amount of currency at a predetermined rate at some point in the future. This type of transaction is also known as a forward outright, an FX forward or a currency forward. A forward outright transaction is mainly used by parties who are seeking to hedge against adverse currency fluctuations or to stabilize a stream of future cash flows by taking advantage of the current rate.

For example, let's say a U.S company known as ZXY imports most of its materials from the U.K. every six months and the executives believe that the value of the domestic currency is going to decrease. If the domestic currency's value does decrease, it will take more U.S. dollars to buy the same amount of materials. In this case, a forward outright transaction would be appropriate: the two parties involved can agree on a certain exchange rate today, and when ZXY needs to purchase materials in six months, it will not be affected by adverse changes in the exchange rate.

An outright rate differs from the rate used in the spot market because the parties factor in characteristics such as the volatility of the currencies and their mutual opinion of where they think the exchange rate will be in the future. The disadvantage of using a forward outright is seen when the exchange rate moves in what would have been a favorable direction had the hedge not been implemented. Because the investor agreed to pay a predetermined exchange rate - regardless of what the rate ends up being when the investor makes the purchase - the investor doesn't stand to gain from favorable changes in the exchange rate.

To learn more, see A Primer On The Forex Market, Getting Started In Forex and Common Questions About Currency Trading.

  1. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  2. What are the goals of covered interest arbitrage?

    The goals of covered interest arbitrage include enabling investors to trade volatile currency pairs without risk as well ... Read Full Answer >>
  3. Over what time period should I be looking at the forward rate?

    Your target time horizon for forward rates depend on your own investment horizon. If you have a specific forward contract, ... Read Full Answer >>
  4. What kinds of derivatives are types of forward commitments?

    A derivative is a type of security in which the price of the security is dependent on underlying assets. A derivative could ... Read Full Answer >>
  5. How do I Implement a Forex Strategy when spotting a Sanku (Three Gaps) Pattern?

    A forex trading strategy can easily be implemented to profit from a market reversal signal that comes from the sanku, or ... Read Full Answer >>
  6. What's a good forex strategy to use when spotting a Wedge-shaped Pattern?

    Use wedge-shaped patterns to identify bullish or bearish price action when trading currencies in the foreign exchange (forex) ... Read Full Answer >>
Related Articles
  1. Active Trading

    An Introduction To Depreciation

    Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
  2. Forex Education

    Explaining Uncovered Interest Rate Parity

    Uncovered interest rate parity is when the difference in interest rates between two nations is equal to the expected change in exchange rates.
  3. Forex Education

    Top 6 Most Tradable Currency Pairs

    The most frequently traded currency pair is the euro/U.S. dollar. The euro is the base currency in the pairing, while the dollar is the quote currency.
  4. Forex Fundamentals

    How to Buy Chinese Yuan

    Discover the different options that are available to investors who want to obtain exposure to the Chinese yuan, including ETFs and ETNs.
  5. Forex Education

    9 Tricks Of The Successful Forex Trader

    These steps will make you a more disciplined, smarter and, ultimately, wealthier trader.
  6. Forex Strategies

    3 Simple Strategies For Euro Traders

    Euro traders can execute three simple but effective strategies that take advantage of repeating price action.
  7. Forex Education

    4 Of The Most Popular Traded Currencies

    Every day, trillions of dollars trade in the forex market. Here are a few of the most popular currencies, and some characteristics for each.
  8. Economics

    Currency Swap Basics

    A currency swap involves two parties exchanging a notional principal and interest to gain exposure to a desired currency.
  9. Forex Fundamentals

    3 Ways To Forecast Currency Changes

    Forecasting exchange rates can help minimize risks and maximize returns. Here are three popular methods for forecasting exchange rates.
  10. Forex Strategies

    Minimize Exchange Rate Risk With Currency ETFs

    Since foreign exchange rates can impact portfolio returns, investors should hedge this risk whenever possible. Currency ETFs are ideal for such a purpose.
  1. Currency

    Currency is a generally accepted form of money, including coins ...
  2. Derivative

    A security with a price that is dependent upon or derived from ...
  3. Transfer Risk

    The risk that a local currency cannot be converted into the currency ...
  4. Inverse Transaction

    A transaction that can cancel out a forward contract that has ...
  5. Forex Spread Betting

    A category of spread betting that involves taking a bet on the ...

    See LIBOR

You May Also Like

Hot Definitions
  1. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  2. Bullish Engulfing Pattern

    A chart pattern that forms when a small black candlestick is followed by a large white candlestick that completely eclipses ...
  3. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  4. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
Trading Center