In this transaction, money does not change hands until some agreed upon date in the future . The buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be anywhere from a few days to several years.
Futures:Futures are forward transactions with standard contract sizes and maturity dates. The average contract length is approximately 3 months. Futures contracts are usually inclusive of interest.
Swaps:
The most common type of forward transaction is the currency swap. In a swap, two parties agree to exchange currencies for a certain length of time and reverse the transaction at a later date. These are not contracts, are not traded through an exchange and not generally available to the retail trader.
Spot:
A two-day delivery transaction, as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included.
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