FX forward points
Definition · Level 11 · Pricing toolkit
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The forward rate minus spot, counted in pips (0.0001 for most pairs, 0.01 for yen pairs). Positive when the quote currency has the higher interest rate.
Example
Spot 1.1000, forward 1.1216 → +216 points.
Where Tradecraft teaches it
Level 11 · Pricing toolkit, in the lesson “FX & commodity forwards”: A currency forward comes from the interest-rate gap (forward points); a commodity forward from storage costs and convenience yield.
Related terms
- Convenience yieldThe benefit of physically holding a commodity (keeping a refinery running, avoiding a stock-out).
- Forward discountA currency whose forward rate buys less of the other currency than spot does.
- FX forward rate (interest-rate parity)The exchange rate locked today for a later date, set by the two interest rates, not by a forecast: F = S × (1 + rquote·T) ÷ (1 + rbase·T).
- 0.4 ruleAt-the-money-forward call or put ≈ 0.4 × S × σ × √T (small dividends, modest σ√T), because 1/√(2π) ≈ 0.4.
- Arbitrage boundsPrice limits any option must respect, or someone locks in a riskless profit: call ≤ S, European put ≤ K·e^(−rT), call ≥ max(0, S − K·e^(−rT))…
- Backward induction (pricing tree)Solving a problem from the last step back to the first.