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Forex

  Forex   |   Terms
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  • February 15, 2023
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Forward Discount

The amount by which the FX forward rate (foreign exchange forward rate) for a currency is less than its FX spot rate: (or the amount by which the spot rate exceeds the forward rate):

Forward discount =  FX spot rate – FX forward rate

This discount arises when the expected forward price (forward outright) of a currency (as quoted in forward contracts, among others) is below its spot price which implies a decrease in the currency price in the future. Irrespective of the quoting convention, the currency with the higher interest rate will always be expected to trade at a discount in the forward market.

The opposite situation or condition is known as a forward premium.


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