What is foreign exchange forward transaction

What is Forex forward trading?
Foreign exchange forward trading is a contract that investors promise to use as hedging when buying and selling foreign exchange on a specific date in the future. In essence, it is a contract between the buyer and the seller to buy and sell a specific currency at a specific spot rate on a specific date. It can help investors pay or hedge against future exchange rate fluctuations. After the payment date and the final date of forward transaction are agreed, investors can lock in the amount of foreign exchange payment.
Essentially, this means that with forward contracts, the seller can set future exchange rates without incurring prepaid costs. However, traders should work with brokers to determine which currencies can be used for forward transactions, as not all currencies can enter into forward contracts.
How does forward trading work?
After signing the forward contract, the buyer and the seller agree on the quantity, unit price and currency exchange date. At the agreed date, the buyer needs to pay the seller the agreed price for the purchase of a predetermined number of assets. This means that if the spot price is lower than the forward price determined in the contract, the seller will make a profit and the buyer will lose money. Therefore, when it comes to currency forward transactions, the two sides can only agree on the amount of loss or profit, not the actual exchange currency.