Could someone please explain me what the instantaneous FX rate corresponds to and why it is used in the valuation of an FX Forward trade?

It is defined as: FX_Instantaneous= FX_Spot-(ON+TN)

where ON and TN corresponds to the Overnight and Tomorrow Next Swap Points. Somehow it is related that it is a cash trade but somehow I cannot perform a bridge here? Normally I selltle these physical but cash? How can I perform a evaluation of a FX Forward with this information and not use instead just the FX Spot rate alone.

  • $\begingroup$ "instantaneous" is being used in the sense of "right now, at this instant". The spot rate is T+2, so by subtracting a two day adjustment they are calculating the rate today, the cash rate, from the more commonly quoted Spot Rate. For an already existing forward contract, using the cash rate makes sense when valuing the contract today. $\endgroup$
    – Alex C
    Commented Oct 22, 2018 at 19:03
  • $\begingroup$ @AlexC, thanks a lot for the answer. But what happen to a trade which expires in T+1? Does that still account to subract the adjustment? $\endgroup$
    – NewNY1990
    Commented Oct 23, 2018 at 12:28

1 Answer 1


If EURUSD Spot is currently trading at 1.21, then trading today for the usual settlement of EURUSD on today+2 would be at 1.21. If you wanted to trade for immediate exchange of EURUSD, what would be the right rate? 1.21? Not really; if EURUSD was expected to go up or down between today and the spot date, I could arbitrarily profit from taking one side or the other.

So just as the market trades the interest rate differences after spot using FX Swap points, it also trades them before spot too. There are two common trades before spot:

ON: Overnight, trades between today and tomorrow. So instead of having USD overnight tonight, you have EUR (or vice versa).

TN: tom(orrow)-next, trades between tomorrow and the next day (i.e. spot for t+2 currencies).

In order to construct an outright FX price for today, you need to buy ON, buy TN and buy Spot, or sell all three. This way the ON back exchange would cancel the TN front exchange, the TN back exchange would cancel the Spot exchange, and you'd be left with a net exchange today at a known price.

I'm not aware of intraday FX forward trades, so presumably 'immediate' is treated as 'today', but given global trades and differences in posting deadlines I wouldn't be surprised if there was a way to trade between the shortest cash posting deadline and the EoD collateralised worlds for an even more immediate requirement.

  • $\begingroup$ Thanks a lot. This is a really good explanation and it makes sense! $\endgroup$
    – NewNY1990
    Commented Oct 29, 2018 at 18:06

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