I'm looking at EUR/USD fwd prices. Currently they are the following ones:

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These are the swap points to be added to the spot price. It seems it increases with time. Therefore, since overnight value date falls before spot value date, I'd expect ON swap points to be negative, but it's not the case. It's not only grater than spot but also one TN, which is after spot.

Is there any reason for that or I'm just understanding these values wrong?

Thank you!

  • 1
    $\begingroup$ There are 3 quotations of a currency: Cash, Tomorrow, and Spot (the most common). And 2 kinds of tenors. The swap points for regular tenors (starting with SN: from T+2 to T+3 and more generally all tenors of the form e.g. T+2 to T+2+N for N>=1) are indeed added to the Spot Rate, but the "pre-spot tenors" ON and TN are not: ON (from T to T+1) is added to the Cash rate and TN (from T+1 to T+2) is added to the Tomorrow rate. $\endgroup$ – noob2 May 15 '20 at 16:03
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    $\begingroup$ So "These are the swap points to be added to the spot price" is incorrect, and "therefore" does not follow. At the present time the value of EURUSD increases the farther the delivery date, and all swap rates are positive. Both are a result of higher interest rates in USA than Eurozone. $\endgroup$ – noob2 May 16 '20 at 1:07
  • $\begingroup$ I understand. However, I don't find anywhere the "cash" and "tomorrow" quotations. I find everywhere only the spot one. Why? If I don't know the cash quotation, I don't know where I have to apply the swap points to... $\endgroup$ – xavier May 18 '20 at 14:20
  • $\begingroup$ The definition is that the spread is applied to the tomorrow quote to get the spot. In practice 99% of the time it is the opposite: You know the Spot and you apply the spread "backwards" (as explained in answer below, changing the sign and reversing the sides) to get the Tomorrow quote. Sorry I was not clear about this point. $\endgroup$ – noob2 May 18 '20 at 15:05

Looks like day count to me, as in overnight is a three day run in this example while tom-next and spot-next are only one day runs. It is easier to use points per day to work out relative value (or actual implied rates and/or basis depending what you are doing) in FX forwards. Also, EURUSD is a T+2 currency pair so overnight is today to tomorrow while tom-next is tomorrow to the spot date. Both value dates would be before spot. This contrasts to T+1 currency pairs like USD/CAD where you only have overnight and spot-next quotes and tom-next doesn't make sense. In FX to get value today and tom all in prices you invert the quote and take cumulative sums. In this case value today would be -79/-74 and value tom would be -20/-18 off the spot rate.

  • $\begingroup$ Ok, now it makes sense! I didn't know the cumulative sums, but the important idea is that you have to change the sign of the swap points indeed. Thank you! $\endgroup$ – xavier May 18 '20 at 16:48
  • $\begingroup$ I found this reference: en.wikipedia.org/wiki/Foreign_exchange_date_conventions and I am confused with the "Calculating expiry and delivery dates" of the "Overnight". It says that value date of Overnight is 1 day after spot value date. I thought overnight was precisely for tomorrow's value date. If the value date is 1 day after spot, it should be positive and this "changing the sign" answer makes not much sense. Is the book Jewitt, Giles (2015). FX Derivatives Trader School (Wikipedia's reference) wrong or I'm mixing things? $\endgroup$ – xavier May 20 '20 at 17:10
  • $\begingroup$ You are looking at the article to calculate option expiry and delivery dates, not forward delivery dates. Anyway, it mentions that overnight is the next weekday after the horizon date, not the spot date. $\endgroup$ – river_rat May 20 '20 at 21:41
  • $\begingroup$ Oh, I missed the "options" part. You're right, thank you! Do you know any reference where I can find the explanation of all forward expiry and delivery dates? Still, the overnight in the options wikipedia article says that the expiry date is the 1st weekday after horizon, but delivery date is like computing spot from the expiry date. Isn't it 1 day after spot? $\endgroup$ – xavier May 21 '20 at 8:38

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