DEFINITION of 'Discount Spread'

Currency forward points that are subtracted from the spot rate, to obtain a forward rate for a currency. In the currency markets, forward spreads or points are two-way quotes, that is, they have a bid price and an offer price. In a discount spread, the bid price will be higher than the offer price, while in a premium spread, the bid price will be lower than the offer price.

BREAKING DOWN 'Discount Spread'

For example, assume a euro spot rate of EUR 1 = 1.4000 / 1.4002 USD, and that six-month interest rates for the euro are higher than for the USD. If the discount spread for six months is 25 / 24, the six-month euro rate will be EUR 1 = 1.3975 / 1.3978 (1.4000 - 0.0025 and 1.4002 - 0.0024).




RELATED TERMS
  1. Forward Spread

    The price difference between the spot price of a security and ...
  2. Spread Indicator

    An indicator that shows the difference between the bid and ask ...
  3. Forex Spread Betting

    A category of spread betting that involves taking a bet on the ...
  4. Forward Points

    The number of basis points added to or subtracted from the current ...
  5. Bid

    1. An offer made by an investor, a trader or a dealer to buy ...
  6. Two-Way Quote

    A type of quote that gives both the bid and the ask price of ...
Related Articles
  1. Investing

    What Does Bid And Asked Mean?

    Bid and asked is a two-way price quotation.
  2. Investing

    How To Calculate The Bid-Ask Spread

    It's very important for every investor to learn how to calculate the bid-ask spread and factor this figure when making investment decisions.
  3. Trading

    Trading Calendar Spreads In Grain Markets

    Futures investors flock to spreads because they hold true to fundamental market factors.
  4. Investing

    What is Spread?

    Spread has several slightly different meanings depending on the context. Generally, spread refers to the difference between two comparable measures.
  5. Trading

    S&P 500 Options On Futures: Profiting From Time-Value Decay

    Writing bull put credit spreads are not only limited in risk, but can profit from a wider range of market directions.
  6. Trading

    Why Financial Spread Betting Gets a Bad Rap

    Spread betting lets speculators trade on price movements. Investors predict whether the spread between the bid price and the ask price will rise or fall.
  7. Investing

    Negotiating the Bid

    A bid is an offer investors make to buy a security.
  8. Investing

    How Bid Price Affects Liquidity

    The bid price is the amount a buyer will pay for a security.
  9. Investing

    What Is Spread Betting?

    The temptation and perils of being over leveraged is a major pitfall of spread betting. However, the low capital outlay necessary, risk management tools available and tax benefits make spread ...
  10. Investing

    Why Is Spread Betting Illegal In The US?

    Spread betting is a speculative practice that began in the 1940s as a way for gamblers to win money on changes in the line of sporting events. But by 1970, the phenomenon trickled into the financial ...
RELATED FAQS
  1. What types of stocks have a large difference between bid and ask prices?

    Find out which factors influence bid-ask spread width. Learn why some stocks have large spreads between bid and ask prices, ... Read Answer >>
  2. What does the variance between the bid and ask price of a stock mean?

    Find out how stocks are traded in the market, why the bid and ask prices are different and why the bid-ask spread is smallest ... Read Answer >>
  3. How is a share premium account taxed?

    Understand the difference between a spot rate and forward rate. Learn why someone would enter into a contract with a spot ... Read Answer >>
  4. What are common factors that affect a security's spot rate?

    Learn the common factors influencing the spot rate for an asset including the bid-ask spread and the forward term structure ... Read Answer >>
  5. What's the difference between a credit spread and a debt spread?

    Learn about debit and credit option spread strategies, how these strategies are used, and the differences between debit spreads ... Read Answer >>
  6. What's the difference between bid-ask spread and bid-ask bounce?

    Understand the difference between the bid-ask spread that determines the buy or sell price for a stock and a bid-ask bounce, ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center