Forward Points

What are 'Forward Points'

Forward points are the number of basis points added to or subtracted from the current spot rate to determine the forward rate. When points are added to the spot rate, there is a forward points premium; when points are subtracted from the spot rate, there is a points discount.

BREAKING DOWN 'Forward Points'

The number of forward points on a given exchange rate will be determined by the prevailing interest rates in each market, the time period between the spot and forward rate, and other market factors. For example, if the current spot rate of the USD/EUR is 0.7232 and the two-year forward rate is 0.7332, the number of forward points is 100 basis points (0.7332-0.7232).

RELATED TERMS
  1. Forward Margin

    The difference between the spot rate and the estimated future ...
  2. Forward Premium

    When dealing with foreign exchange (FX), a situation where the ...
  3. Forward Spread

    The price difference between the spot price of a security and ...
  4. Forward Discount

    In a foreign exchange situation where the domestic current spot ...
  5. Discount Spread

    Currency forward points that are subtracted from the spot rate, ...
  6. Currency Forward

    A binding contract in the foreign exchange market that locks ...
Related Articles
  1. Professionals

    Forward Market Calculations

    CFA Level 1 - Forward Market Calculations. Learn how to calculate spreads on forward currency quotations. Shows the calculations behind annualized forward discounts and premiums.
  2. Investing Basics

    Explaining the Spot Rate

    The spot rate is the immediate purchase price posted on exchanges for purchasing commodities, currency and securities.
  3. Professionals

    Forward Rates vs Spot Rates

    CFA Level 1 - Forward Rates vs Spot Rates. Learn how to convert spot rates to forward rates and vice versa. Provides many sample calculations on the conversions.
  4. Forex Education

    How To Lock In An Exchange Rate

    Currency risk can be effectively hedged by locking in an exchange rate through the use of currency futures, forwards, options, or exchange-traded funds.
  5. Options & Futures

    Why Forward Contracts Are The Foundation Of All Derivatives

    This article expands on the complex structure of derivatives by explaining how an investor can assess interest rate parity and implement covered interest arbitrage by using a currency forward ...
  6. Forex

    Trading Currencies

    Currencies are traded around the world. Learn how to get in.
  7. Forex Strategies

    The Money Market Hedge: How It Works

    Investopedia explains how to hedge foreign exchange risk using the money market, the financial market in which highly liquid and short-term instruments like Treasury bills, bankers’ acceptances ...
  8. Fundamental Analysis

    What is a Forward Rate?

    Forward rate is used in both bond and currency trading to represent the current expectations of future bond interest rates or currency exchange rates.
  9. Investing Basics

    Understanding the Spot Market

    A spot market is a market where a commodity or security is bought or sold and then delivered immediately.
  10. Professionals

    Interest Applications

    CFA Level 1 - Interest Applications. This section provides proof for the interest rate parity between currencies. It gives formulas and sample calculations behind the parity.
RELATED FAQS
  1. 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 >>
  2. How do I convert a spot rate to a forward rate?

    Learn how to convert spot rates to forward rates for financial transactions agreed to today but not to be executed until ... Read Answer >>
  3. What is the difference between a forward rate and a spot rate?

    Learn about spot and forward contracts, how spot and forward rates are used for spot and forward contracts, and the difference ... Read Answer >>
  4. Over what time period should I be looking at the forward rate?

    Read about forward rates and forward prices, how they function, and which rates you should look at based on your own investment ... Read Answer >>
  5. How valuable is the forward rate as an overall economic indicator?

    Find out why the forward rate is considered an important economic indicator, the logic behind this consideration and possible ... Read Answer >>
  6. How accurate is the forward rate in predicting interest rates?

    Find out why forward rates are inconsistent and limited predictors of actual future interest rates, primarily because the ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center