I have a (hopefully) elementary question about forex swaps.

Most feeds will have a near and a far leg (or more legs for more exotic swaps).

I appreciate that "buying the swap" involves locking in multiple transactions at different points in time, with different rates.

Is there a convention for representing these multiple prices as a single price? After all, spreads/strategies are presented with a single price to buy or sell, based on its legs.

Is it something like (near price - far price), or the inverse? If so, how does this work for swaps with six legs containing different amounts at each leg?


1 Answer 1


From my FX trainer the swap points reflect the differential in interest rates between the 2 currencies. If the trade was on the RHS the market maker would be giving up the currency with the higher interest rate (points my favour) and receiving the currency with the lower interest rate. The swap provides both parties with an accurate cost of switching such cash flows.

Here, you're trying to take a differential across 6 value dates. So provided everything is the same way around I don't see why you can't do as you've said and subtract any number of differentials into 1 aggregate, and get a total cost to switch all the cash flows.

However, from here there is something called a single spot portfolio (SSP) being "an FX deal involving one or more legs in a single currency pair on any combination of value dates. The dealt currency should be the same for all legs. SSP price quotes typically have four components: a spot rate, the FX points for each of the non-spot value dates, and the all-in rates for each of the non-spot value dates."

And again "A foreign exchange transaction or "deal" involving multiple value dates for a single currency pair. The Provider quotes a single spot rate (hence the name) together with FX points for each value date."

So in a professional implementation of what you're talking about, as a client you'd want to see each differential between spot and the far date(s). So you can see an accurate cost of each cash flow in the deal, I guess. Perhaps compare these costs with other providers.

  • $\begingroup$ So how is one supposed to easily determine which of a series of quotes is "most competitive"? Let's say we're dealing with a swap on EUR/USD. Quoter #1 shows you a "left sided" price of 1.089 on the near leg, 1.092 on the far leg. Quoter #2 shows you a "left sided" price of 1.090 on the near leg, 1.091 on the far leg. It's a contrived example, but who do you engage with? Keeping it simple, assume the same quantity on all legs in consideration. $\endgroup$ Mar 17, 2016 at 1:48
  • $\begingroup$ So if the maker is on the LHS then you as taker are buying spot and selling forward. Everyone wants to buy low and sell high, so the better price here looks like 1.089 / 92 however, this isn't the way a price would be quoted. Really, you have to compare cash flows in a spread sheet! $\endgroup$
    – rupweb
    Mar 17, 2016 at 12:10
  • $\begingroup$ Okay, bad example then. 1.089 and 1.091 vs 1.090 vs 1.092. One you're buying higher, one you're selling higher. But as you said, you just have to analyze the cash flows. But you also said that's not how prices are quoted... Do you mean they're usually quoted as a spot price and swap points? But that effectively gives you the same result, right? Multiple prices for a given transaction? $\endgroup$ Mar 17, 2016 at 12:34
  • $\begingroup$ Yes, the reason the thing is quoted in swap points is so the interest rate differentials can be quickly compared across many providers in a competitive market. otherwise you'd have to work out the difference, which is inefficient. Yes, you get the same result, but not multiple prices. The spot and interest rates are where they are when you come to market. But we've moved from a 6 legged swap (or portfolio) to a 2 legged swap now ! $\endgroup$
    – rupweb
    Mar 21, 2016 at 9:56

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