Forward Premium

A futures contract represents a deal that takes place some time in the future. You aren’t buying and selling the things now. (Those immediate transactions take place in what’s known as the spot market.) Instead, the futures contract lets you lock in a price for a transaction closing in the future.

It’s January, but you buy 300 barrels of oil at $70 for delivery in June. June rolls around and the spot market for oil is $72 a barrel. Doesn’t matter, your futures contract allows you to pay the $70.

A forward premium indicates that the futures price for a currency is higher than the spot price. The current price for the EUR/USD currency pair is 1.12. A futures contract for two months from now is trading at 1.15. A forward premium of 0.03.