Lesson 3 of 5 · 12 min
Forward points, premiums and discounts
Forward rates are quoted as points added to the spot rate, scaled to the spot quote's last decimal; positive points mean the base currency trades at a forward premium.
In short
- Forward points (also pips or swap points) = (forward − spot), scaled to the last decimal of the spot quote: ×10,000 for four-decimal quotes, ×100 for yen.
- Forward rate = spot + points ÷ 10,000 (÷ 100 for yen).
- Points > 0: the base currency trades at a forward premium and the price currency at a discount. Points < 0: the reverse.
- The same gap can be shown as a percentage of spot: F ÷ S − 1. Then F = S × (1 + %).
- The absolute number of points generally grows with maturity.
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