I'm looking at EUR/USD forward rates here: http://www.investing.com/currencies/eur-usd-forward-rates

Can someone explain, in very simple terms, what do the bid/ask prices mean? And what is the difference between a forward contract and a future contract in this case?

2 Answers 2



With FX, you always have to make sure you know what direction the quote is. EURUSD would show how many USD per 1 EUR (the base currency). There is a simple rule to remember for bid and ask quotes: BBBB - bank buys base at bid. Therefore, the

  • bid price is where the market maker buys EUR (hence a client sells the EUR / buys USD)
  • ask price is where the client buys EUR / sells USD

Futures vs Forwards

  • Futures are exchange traded, as such highly standardized and subject to daily mark to market [MtM] (see here for an example of this).

  • Forwards are traded over the counter and usually quoted in points (as in your link). The all-in rate (Spot plus points) is called the outright (forward). Some, predominantly Latin American markets, have more liquid outright markets but the difference is not very important.

There is very little difference in the quoted price / outright of futures and forwards with the same expiry.

What is the points quotation really? The main reasons points are the preferred choice is that you know the "add-on" on top of spot in an isolated manner. If you have an outright quote, you do not know what spot and/or points were used to get to the outright quote. The points are scaled (in your example by *10000 but it depends on the FX pair), because otherwise the value would be so small that it is difficult to read for the human eye. The size of the points itself are a result of a no arbitrage argument known as covered interest rate parity.

There are two exceptions in the quotes you linked, namely ON and TN which stands for overnight and tomorrow next. These are not outrights but swaps, meaning it is a buy and subsequent sell agreement. You can find details here.

A concrete example from Bloomberg is below: enter image description here

Spot ask is 1.0441, Spot bid is 1.0447.

  • If you (clients) sell EUR, you get 1.0441 USD per EUR. If you were to immediately buy the EUR back, you would have to give 1.0447 USD to receive 1 EUR. This loss (from the bid ask spread) is a large part of what makes market makers run their business. On the other hand,
  • if you sell USD, you get 1 EUR for 1.047 USD. If you were to buy back the USD immediately, you only get 1.0441 USD for 1 EUR, also a loss. That is why the BBBB rule is so neat, you do not need to know how FX works to get the directions right as long as you remember bank buys base at bid.

Spot bid + bid points for 3m results in 3m outright: 1.0441 + 67.47/10000 = 1.050874 (which is the outright bid quote in the column Fwds Bid).


what do the bid/ask prices mean?

For any trade to take place, the price a buyer is will to pay and the price a seller is willing to accept must match. This does not happen.

So the buyer indicate the max price they are willing to pay. This is call bid [as they are trying to bid for an item and may not get it].

Similarly the seller will indicate the lowest price at which they are will to sell, i.e. the minimum price they ask for an item and may not get it].

So the exchanges always list the bid price, and ask price. So an existing [or new] buyer or seller know the positions and they may increase the bid price or lower the ask price depending on how they deem markets to move.

forward contract and a future contract in this case?

Future contract as agreement between buyer and seller to buy an item at a specified price and a specified future date. Depending on the item, the exchange generally governs most of the parameters including the date when these contracts mature.

Forward contracts are similar to future except that most parameters are customised between buyer and seller.

  • Good answer, but a small detail. The bid is the max price of all current actors attempting to buy in that particular market. So if you are attempting to sell one of these contracts right now this is the best price you can hope to get right now. Similarly the ask is the minimum of all actors currently attempting to sell.
    – rhaskett
    Commented Nov 30, 2015 at 17:31
  • @rhaskett Agreed. Not sure how I want to edit and incorporate your suggestion. Feel free to edit.
    – Dheer
    Commented Nov 30, 2015 at 17:38
  • @Dheer one important difference is that Future contracts are traded on a regulated exchange while Forward contracts are traded OTC. You could trade a contract with exactly the same parameters as a Future contract, but if you do it OTC it is called a Forward contract.
    – Octoplus
    Commented Dec 30, 2015 at 9:49
  • 1
    You have missed the crucial point - that the forwards are quoted in forward points, i.e. the number of basis points that should be added to the spot rate to determine the forward rate (for example see here). Commented Dec 30, 2015 at 10:21

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .