Forward Points

Futures contracts let you buy or sell something in the future at a set price. It’s like an option in the sense that the purchase takes place in the future, but the main quality of an option involves, well...the fact you have an option. You have the ability to buy or sell something, but not the obligation.

With a future, the deal has to go through. You are committed to the transaction. The basic purpose of the future is to lock in a price.

That's the "forward" part of the "forward points."

Now to the "points."

Prices in the currency market are given in basis points. Most markets are priced in some uniform currency. For instance, when you buy stocks on the U.S. stock market, all the prices are given in dollars.

But currency markets don’t have a uniform currency. Each transaction involves a currency pair...euros to dollars...dollars to yen...Canadian dollars to Polish zlotys, etc. To avoid confusion, the prices in the currency market are generically referred to as “points,” or “basis points.”

A forward point is the difference in price between the current market price for a currency pair (called the spot price) and the price of the same pair in the futures market. You are either getting or losing forward points when you make your futures contract, depending on whether the currency pair is higher or lower than its current levels. Its a way of describing the future prices in the currency market.