FX forward - Financial definition
Financial acronyms
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Concise definition of the term FX forward
An FX forward is an OTC contract to buy or sell a set amount of one currency against another at a predetermined exchange rate for settlement at a specified date in the future.
Comprehensive definition of the term FX forward
The exchange rate is typically the spot rate, adjusted for the so called forward points, which materialise the interest rate differential between the two currencies for the period between the spot value date and the future value date.
Forward traders do not trade FX rates, but FX forward points. Because forward points represent a difference in rate as opposed to being a rate, there is no big figure. For example, to represent a difference in EUR/USD between 1.1123 and 1.11285, the forward points would be 5.50, because one pip or point is worth 0.0001 in EUR/USD.
Forward points may be positive or negative. If they are positive, then the interest rate of the base currency is lower than that of the price currency and vice versa.
Forward points may be positive or negative. If they are positive, then the interest rate of the base currency is lower than that of the price currency and vice versa.