Definition – What does In the Forward Points mean?
Forward Points are the premium or discount pips added to or subtracted from the current or “spot” exchange rate to calculate a forward price for a forward forex contract.
Typically, “pips” are the fourth decimal point in a currency quote, similar to “basis points’ or one-hundredth of a percent, 0.01%.
However, this definition may vary if the conventional manner of quoting a currency is not four decimal places.
In that case, the convention is the last decimal place quoted. The points are calculated by taking into account the prevailing interest rate differential between to two countries of the respective currency pair, the length of the forward contract, and other factors, generally pertaining to credit or sovereign risk.