DEFINITION of 'Earning The Points'

A currency trading term that describes when the forward ask price is lower than the spot bid price, resulting in a gain for the trader. A trader is gaining the points when he or she sells at one price now then agrees to buy for less in the future. Gaining the point only refers to the difference between sell and buy prices and does not take the time value of money into account.

This is the opposite of "losing the points".

BREAKING DOWN 'Earning The Points'

If the individual sells at the higher ask price in the spot market, then buys at a lower bid price in the futures market, he or she is gaining the points.

For example, suppose that Peter sells the British pound at 2.2055 dollars per British pound in the spot and enters into a forward contract to buy the pound back at 2.2000 dollars per pound in the future. Peter is gaining the points, in this case 0.0055 dollars per pound.

RELATED TERMS
  1. Losing The Points

    Losing the points is a currency trading term that means a trader ...
  2. Forward Points

    The number of basis points added to or subtracted from the current ...
  3. Forward Margin

    The difference between the spot rate and the estimated future ...
  4. Ask Size

    Ask size is the amount of a security that a market maker is offering ...
  5. Spot Trade

    A spot trade is the purchase or sale of a foreign currency or ...
  6. Spot Price

    The current price at which a particular security can be bought ...
Related Articles
  1. Trading

    Combining Forex Spot And Futures Transactions

    The spot, futures and option currency markets can be traded together for maximum downside protection and profit.
  2. Investing

    Understanding Gold Quote Prices

    Willing to trade gold but puzzled by gold price quotes and terminology? Investopedia explains how to read gold price quotes.
  3. Trading

    The Basics of the Bid-Ask Spread

    The bid-ask spread is the difference between the bid priceĀ and ask priceĀ prices for a particular security.
  4. Trading

    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. Tech

    How are Bitcoin Futures Priced?

    A detailed explanation of how bitcoin futures contracts are priced theoretically and in reality
  6. Trading

    Using Options Tools To Trade Foreign-Exchange Spot

    Find out how delta, gamma, risk reversals and volatility can all help predict movements in the cash market.
  7. Trading

    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 ...
  8. Trading

    Sizing A Futures Trade Using Average True Range

    Futures trading is risky business, so it's crucial that traders' positions match the level of risk they are willing to bear.
  9. Tech

    Price Difference In Bitcoin Futures and Spot Markets Presents Arbitrage Opportunity

    Traders can make easy money by arbitraging the price difference in bitcoin futures contracts and spot market prices.
RELATED FAQS
  1. How do I convert a spot rate to a forward rate?

    The spot rate shows the cost of executing a financial transaction today, while the forward rate provides the cost of executing ... Read Answer >>
  2. What do the numbers after the bid and ask numbers in stock quotes mean?

    These numbers are called the bid and ask sizes, and they represent the aggregate number of pending trades at the given bid ... Read Answer >>
  3. What is the difference between trading currency futures and spot FX?

    The main difference between currency futures and spot FX is when the physical exchange of the currency pair takes place. Read Answer >>
  4. Why do futures' prices converge upon spot prices during the delivery month?

    Learn why as the delivery month of a futures contract approaches, the future's price will generally inch toward or even come ... Read Answer >>
  5. Why the British Pound Is Stronger Than the U.S. Dollar

    Learn why the British pound is stronger than the U.S. dollar, despite the U.S. economy being larger than that of Britain ... Read Answer >>
Hot Definitions
  1. Return On Equity - ROE

    The profitability returned in direct relation to shareholders' investments is called the return on equity.
  2. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  3. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  4. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  5. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  6. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
Trading Center