1492 terms

Glossary

Every term is defined twice: once the way a filing would put it, and once the way somebody would explain it to you across a table. The second one is usually the one that sticks.

Showing 2 terms

Forward premium

Derivatives

Also called: Forward points

The gap between a currency’s forward or futures price and its spot rate, arising from the interest rate differential between the two currencies.

In plain terms

It shrinks to nothing at expiry by construction, so a currency futures chart can fall over a month in which the spot rate rose. Measure the premium as a distance and compare it with the move your setup expects.

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Interest rate differential

Derivatives

The gap between short-term interest rates in two currencies, which sets the forward premium and therefore the slope of a currency futures curve.

In plain terms

The same idea as cost of carry in an equity future, met on a currency chart. It is a financing number, not a view about either currency.

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