Currency Forward Points (often called "fwd points" or "swap points") are the number of pips added to or subtracted from the Spot Rate to calculate the Forward Rate for a specific date.
They are not a prediction of where the currency is going. Instead, they are a mathematical application of the **Interest Rate Parity** theory, representing the cost of carry between two currencies.
Premium vs. Discount Explained
When looking at forward points, the sign (+ or -) tells you about the interest rate relationship:
Forward Premium (+)
Points are Positive.
This means the Forward Rate is HIGHER than the Spot Rate.
Cause: The Base Currency has a LOWER interest rate than the Quote Currency.
Forward Discount (-)
Points are Negative.
This means the Forward Rate is LOWER than the Spot Rate.
Cause: The Base Currency has a HIGHER interest rate than the Quote Currency.
If EUR/USD Spot is 1.1000 and the 1-Year Forward is 1.1200:
Difference = 0.0200
Scale (Pips) = 10,000
Points = +200 Points
The Link to Interest Rates
Why do points exist? Because money has a time value. If you hold a high-interest currency, you earn daily interest. If you hold a low-interest currency, you earn less.
To prevent free money (arbitrage), the FX market adjusts the future exchange rate. If you hold the high-rate currency, the market forces you to sell it at a "worse" rate in the future (a discount) to offset exactly the extra interest you earned.
Real-World Examples
USD/JPY: Typically trades at a discount (negative points) when US rates are higher than Japanese rates. Traders selling USD forward get fewer Yen than spot.
EUR/USD: If Euro rates (ECB) are lower than Fed rates, EUR/USD trades at a premium (positive points). Traders selling EUR forward get more Dollars than spot.
Frequently Asked Questions
Expert answers on Forward Points and Pips
What is one "Point" worth?
In most pairs (like EUR/USD), one point equals one pip (0.0001). In JPY pairs (like USD/JPY), one point equals 0.01. The scale factor adjusts this decimal placement.
Do positive points mean the currency will go up?
No. Positive points (Premium) only mean the base currency has a lower interest rate. It is not a bullish signal for the spot price. In fact, academically, it suggests the currency should fall to that level, though reality often differs.
How are points quoted in the market?
Dealers quote points as bid/ask, e.g., "20 / 22". If Spot is 1.1000, the Forward Bid is 1.1020 and Forward Ask is 1.1022. You always add points to spot (if positive) or subtract (if negative).
Can forward points be negative?
Yes. If the Forward Rate is lower than the Spot Rate, points are negative. Traders often write this as a "Forward Discount."
What is the "Scale" input?
It determines how many decimals correspond to a whole number. Standard Forex standard is 10,000 for 4-decimal pairs and 100 for 2-decimal pairs.
Why do points change?
Points change primarily because interest rate expectations change. If the Central Bank signals a rate hike, the points curve shifts immediately.
What is a "Swap Point"?
It is synonymous with Forward Point. It refers to the points paid or earned in an FX Swap (Spot vs Forward) used to roll over positions overnight.
Can I use this for commodities?
Yes, calculating "Contango" or "Backwardation" in commodity futures uses similar logic, comparing Spot to Future prices, though storage costs matter more than interest rates.
Do banks charge a markup on points?
Yes. The "Spread" on the forward points is often wider than the spot spread. This is a hidden cost of hedging for corporate clients.
How does time affect points?
Points scale roughly linearly with time. A 6-month forward will have roughly double the points of a 3-month forward, assuming the yield curve is flat.
Summary
The Currency Forward Points Calculator reveals the interest rate differential between two currencies.
It translates abstract decimal differences into actionable "pips" and premiums.
Use this tool to price hedges, evaluate swap costs, and understand the cost of carry in your Forex portfolio.
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Convert forward vs spot into forward points and percentage premium/discount.
How to use Currency Forward Points Calculator
Step-by-step guide to using the Currency Forward Points Calculator:
Enter your values. Input the required values in the calculator form
Calculate. The calculator will automatically compute and display your results
Review results. Review the calculated results and any additional information provided
Frequently asked questions
How do I use the Currency Forward Points Calculator?
Simply enter your values in the input fields and the calculator will automatically compute the results. The Currency Forward Points Calculator is designed to be user-friendly and provide instant calculations.
Is the Currency Forward Points Calculator free to use?
Yes, the Currency Forward Points Calculator is completely free to use. No registration or payment is required.
Can I use this calculator on mobile devices?
Yes, the Currency Forward Points Calculator is fully responsive and works perfectly on mobile phones, tablets, and desktop computers.
Are the results from Currency Forward Points Calculator accurate?
Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.