With the largest market on earth, Foreign Exchange trading, or forex trading, has become increasingly popular over the past few decades. One of the key strategies used in forex trading is to utilize far value dates as a way to manage foreign exchange risks. This article will explain the concept of far value dates in the forex trading arena, and will provide insight into the different methods used to effectively make use of the far value dates. In foreign exchange (FX) trading, the far value date refers to the settlement date for an FX transaction that is further away in the future than the standard settlement date. This could happen when one or both parties to the transaction are looking to lock in a preferred FX rate, but need the payment to occur at a later point in time.
The far value date impacts the FX rate for the transaction as it is generally more expensive to transact at a later settlement date due to market conditions. Additionally, potential FX rate movements may increase the cost of the transaction for one of the parties. As such, both parties must carefully assess the cost-benefit of using a far value date transaction.