Forward Booking

AAA

DEFINITION of 'Forward Booking'

A way of trading currency while minimizing the risk of volatile exchange rates. The booking company (risk agents) will write up a contract specifying what the rate of exchange will be, and in doing so will assume the exchange rate risk. The contract will also outline a timeline in which the trade must be made. The fee associated with the forward book is usually based on a percentage of the amount being traded in the contract.

INVESTOPEDIA EXPLAINS 'Forward Booking'

For example, if Mr. A plans to purchase a big ticket item from Europe in January, and the euro is quite low in December, he may want to forward book in case the euro skyrockets in the next month. The booking company, after making the contract would hope for the euro to plummet. However, if it doesn't, they would still have the fee paid for the transaction.

RELATED TERMS
  1. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
  2. Authorized Forex Dealer

    Any type of financial institution that has received authorization ...
  3. Currency

    A generally accepted form of money, including coins and paper ...
  4. Currency Trading Platform

    A type of trading software used to help currency traders with ...
  5. Forex - FX

    The market in which currencies are traded. The forex market is ...
  6. Risk

    The chance that an investment's actual return will be different ...
RELATED FAQS
  1. What does the underlying of a derivative refer to?

    A derivative security is a financial instrument in which the price of the derivative is dependent on its underlying asset. ... Read Full Answer >>
  2. How can an investor terminate a derivative contract?

    Most derivatives contracts have provisions allowing for early termination and netting out the initial investment. The early ... Read Full Answer >>
  3. How can an investor profit from a decline in the real estate sector?

    Speculation enables investors to profit from a decline in the real estate sector. The most popular forms of speculation for ... Read Full Answer >>
  4. What does it mean to take delivery of a derivative contract?

    When trading derivative contracts for options, a buyer or holder may have to take delivery of the underlying asset if the ... Read Full Answer >>
  5. Will technology ever disrupt the role of the custodian bank?

    Custodian banks, along with other financial institutions that hold custodian accounts, are likely to be disrupted but not ... Read Full Answer >>
  6. How is fair value calculated in the futures market?

    The fair value is the theoretical calculation of how a futures stock index contract should be valued considering the current ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Investing During Uncertainty

    The inability to forecast future events can turn the markets upside down. Find out how to stay right-side up.
  2. Forex Education

    Commodity Prices And Currency Movements

    Find out which currencies are most affected by fluctuations in gold and oil prices, and improve your trading.
  3. Forex Education

    Top 7 Questions About Currency Trading Answered

    Whether you're puzzled by pips or curious about carry trades, your queries are answered here.
  4. Bonds & Fixed Income

    6 Factors That Influence Exchange Rates

    Find out how a currency's relative value reflects a country's economic health and impacts your investment returns.
  5. Investing Basics

    Understanding Non-Deliverable Forward (NDF)

    A foreign exchange hedging strategy where the parties agree to settle the profit or loss in a foreign currency futures contract before the expiration date.
  6. Forex Education

    How To Lock In An Exchange Rate

    Currency risk can be effectively hedged by locking in an exchange rate through the use of currency futures, forwards, options, or exchange-traded funds.
  7. Investing Basics

    Explaining Currency Swaps

    A swap that involves the exchange of principal and interest in one currency for the same in another currency.
  8. Forex Education

    Top Economic Factors That Depreciate The $US

    A variety of factors contribute to currency depreciation, including monetary policy, inflation, demand for currency, economic growth and export prices.
  9. Investing Basics

    Understanding Notional Value

    This term is commonly used in the options, futures and currency markets because a very small amount of invested money can control a large position.
  10. Forex Education

    The Pros & Cons Of A Forex Trading Career

    Trading foreign currencies can be lucrative, but there are many risks. Investopedia explores the pros and cons of forex trading as a career choice.

You May Also Like

Hot Definitions
  1. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  2. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  3. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  4. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  5. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  6. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
Trading Center