Glossary

Forward points

The difference between a currency's spot and forward exchange rate, driven by the interest rate gap between the two currencies.

Also called: swap points

Forward points are the number of pips added to or subtracted from a currency pair's spot exchange rate to get its forward rate for delivery on a future date. Quoted as points rather than an outright rate, they are added when the forward is at a premium to spot and subtracted when it is at a discount.

Forward points are set by interest rate differentials through covered interest rate parity, roughly forward ≈ spot × (1 + rate(quote)×t) / (1 + rate(base)×t), not by a market view on where the exchange rate is headed. A currency with a higher interest rate than its counterpart typically trades at a forward discount, and one with a lower rate at a forward premium, the same interest gap a carry trade tries to capture directly. The pattern is the FX analogue of contango and backwardation in commodity futures markets, where cost-of-carry likewise drives the gap between near and far prices.

Traders and treasurers use forward points to price FX forwards and swaps, hedge future foreign-currency cash flows, and back out the market-implied interest rate differential between two currencies. A common mistake is reading forward points as a directional signal for the spot rate rather than as a reflection of the interest rate gap and time to delivery.

Last reviewed September 22, 2026

In the index now

Related terms

Carry trade Borrowing in a low-interest-rate currency to invest in a higher-yielding one, profiting from the rate gap unless the exchange rate moves against it. Purchasing power parity (PPP) A theory that exchange rates should adjust so identical goods cost the same amount across countries once converted to a common currency. Futures curve The set of prices for futures contracts on the same underlying asset across different expiration dates, plotted together. Contango and backwardation The two shapes a futures curve can take, contango slopes upward with time to delivery, backwardation slopes downward.

Related guides

FX and commodities analytics, explained How currency and commodity markets are actually measured — the price relationships, curves and spreads analysts watch and why they exist.