In the foreign currency market, there are two main trading platforms--the spot market and the forward market. The spot market is the short-term market since trades are executed and settled in two days. Banks or institutions that need to quickly exchange currencies will operate in the spot market.
The forward market is the long-term currency market where contracts between parties last for longer than two days. There is no limitation placed on how long contracts can be held for, but it's rare to traders who are willing to make long term bets. Since there are so many factors that influence currency movements, most trades won't span out too far.If an investor thought that the price of the dollar was going to appreciate over the next few months, he would want to lock in a forward contract to buy the dollar at today's price. When the dollar appreciates, the investor can sell it back into the currency market for the new spot price and make a quick profit. Institutions also take advantage of forward contracts to lock in prices to pay foreign suppliers.When entering into spot or forward transactions, make sure you're reading the details carefully. The bid and ask prices for currencies are reversed in these two markets. This mistake costs a lot in missed profits. Unfortunately, it's a fairly common mistake. If you're using a Forex trading system, make sure you ask for professional support before entering into your first forward contract.
