FX forwards: pricing, cost, and how to benchmark them

What an FX forward is

A forward is an agreement to exchange a set amount of one currency for another at a fixed rate on a future settlement date. A company with a EUR invoice due in three months can lock the rate now and remove the risk of the currency moving against it before payment falls due.

One misconception is worth clearing early. The forward rate carries no view on where the currency will trade. It is a mechanical adjustment of today's spot rate, held in place by arbitrage (traders who would pocket a risk-free profit if the price drifted out of line), and it would be the same whether the market expected the currency to rise, fall or sit still.

How a forward differs from a spot trade

A spot trade settles in two business days. A forward settles later, and its price differs from spot for a single reason: the interest-rate difference between the two currencies over the life of the contract. Everything else about the two trades is the same, including the fact that the bank sets the margin, not the market. A company that benchmarks its spot trades and leaves forwards unmeasured has usually left the larger cost unmeasured, because forward trades tend to be bigger and settle further out.

How the forward rate is built

Start with the spot rate, then add forward points that account for the interest-rate gap over the tenor, meaning how far ahead the trade settles. The currency with the higher interest rate trades below spot on the forward (a discount), the lower-rate currency above it (a premium). Arbitrage keeps this honest: if the points drifted from the rate gap, banks could lend in one currency, exchange, and lock a risk-free profit.

USD's higher rate puts the EUR/USD forward above spot. The points are a market input, visible to anyone with a data feed. The bank's margin enters after this step.

Broken dates, and why they matter for cost

Forward points are quoted for standard, round tenors: 1 week, 1 month, 3 months and so on. Those are the fixed dates. Real company cash flows rarely land on them, so most hedges (forwards put on to cover a specific payment) settle on a broken date in between: a settlement date with no standard quote of its own, priced by reading the line between the two nearest fixed dates, which is called interpolation. Broken dates deserve attention for one practical reason. The harder a price is for you to check, the more room there is in it, and a 47-day forward has no screen rate to glance at.

A benchmark has to handle this precisely. Just fills in the forward points across fixed and broken dates out to 3-4 years, so a 47-day EUR/USD forward is scored against a real market rate for that exact date, at the actual trade size, and on the correct side of the book (whether you were buying or selling).

Where the margin hides

Banks rarely quote a forward as a rate plus a separate fee. The margin is folded into the all-in forward rate, and because that rate already contains a legitimate market adjustment, the forward points, a few extra points of margin blend in without a trace. Look only at the rate and you see none of the cost.

Put numbers on it: the same 12-month trade, taken apart.

Nothing on the ticket itemizes any of it.

The real risks of a forward

A forward removes rate uncertainty and brings in exposures of its own. Counterparty risk: if the bank or the company cannot settle, the contract may have to be unwound at the current market price. Opportunity cost: once the rate is locked, you give up any favourable move before settlement. Both come with the instrument and are worth carrying knowingly. The hidden margin is a different kind of item. It is a pricing choice by the bank, and the one cost on this list you can measure and negotiate.

How to benchmark a forward

The reference has to match the trade. That means the real market forward rate at the moment you executed: same currency pair, same value date (the day the currency actually changes hands, broken dates included), and a rate you could have dealt at for your actual size, on the correct side of the book. The interbank mid fails this test on every count. The interbank market is the wholesale market where banks trade with each other; its mid is the midpoint between the buy and sell price, a number nobody can actually deal on. That is why analysis built on the mid rarely survives contact with the bank. A real market rate is harder to assemble and harder to argue with.

The second reference is other companies like you: what similar companies with comparable trades pay for the same pair and tenor. Margins that look reasonable on their own often sit far from what similar companies pay, and margins on longer tenors deserve particular scrutiny because fewer customers check them. A comparison like this is only worth showing where there are enough similar companies to make it fair. The Just Cost Index is built on hundreds of companies, millions of benchmark trades and $2tn+ in total trade value measured. Customers have saved over $75M to date. As of mid-2026, measured across the Just benchmark network (counting basis).

What a fair forward looks like

There is no single fair number for forward margin. Fair is a position relative to companies like you, on the same pair, size and tenor, and it is provable.

Measured against similar companies, an expensive book shows up within weeks, and the evidence supports a negotiation you hold directly with your bank. As an illustrative reference point across a whole FX book: a company measured at 34 bps weighted average negotiated down to 11 bps with the same banks, worth roughly EUR 690,000 a year on a EUR 300m book. Forwards, with their longer tenors and larger tickets, are usually where the bigger share of that gap lives.