Quantitative Finance Stack Exchange is a question and answer site for finance professionals and academics. It only takes a minute to sign up.
Sign up to join this community
My understanding is that forward rates are calculated by comparing interbank interest rates of the 2 currencies for a currency pair, with the points being the difference between spot and the forward rate.
If that's the case, then forward points would update quite often (with fluctuations in the spot rate), but within bank platforms, they're fairly static. Do they create static forward points for the day?
Forward points are calculated by the short term interest rate desks (STIR) and, because central banks and governments don't often change their money market base rates, the fluctuations set by the interest rate markets are infrequent. The interest rates depend on the money markets.
Forex all-in rates are calculated depending on the interest rate premium, or discount, between the two currencies at the time.
The equation is spot +/- forward pips = all-in
The volatility is mainly due to spot, because that depends on, well, a different risk profile than future interest rates.
What platforms are you looking at (and at what time of day)? FX Forwards are not static, certainly for major currencies.
Indicative prices are published to platforms like Reuters and Bloomberg by various brokers and banks periodically, but they are not a reflection of actual trading prices, just occasional snapshots. If you want a current price you have to call your broker.
Watching a single broker source for EUR/USD right now, I can see multiple updates every second, to most of the tenors out to 10y. And that's just the published values which are filtered and rounded and so on. If you aggregate together lots of such sources, you get a much clearer picture of real second-to-second price changes.
Also be aware that banks are more likely to put up prices based on orders they are seeking to fill, with some spread away from the market. If you want more realistic, tighter prices, you need to look at broker feeds.
Completely agree with rupweb's answer. Unfortunately cant upvote due to no rep. Just detailing that forward points basically represent the interest rate differential in the two currencies under consideration(as per Covered Interest Rate Parity). As the bank generally knows what its funding is in each of the currencies for a particular time frame and since this does not change very frequently, the forward points themselves do not change by much within a day. However if you ask for a quote then the trader on the bank side may move his quote to reflect his view on the currencies/interest rates or the way his book is axed which might result in some fluctuations in quotes at different times of the day. Other than that most of the volatility you see in a deliverable/non-deliverable forward price comes only from moves in the spot.
