Forward Market: Definition, a Real EUR/USD Example, and Forward vs Spot vs Futures

Michael Whitman · Trading since 2017, full-time since 2020 · YouTube creator, 137K subscribers · Published 2026-09-14 · Updated 2026-11-02 · Reviewed 2026-11-01

A forward market is the over-the-counter market where two parties agree today on a price for an exchange on a later date, struck with a dealer rather than on an exchange. Its largest part, currency forwards, averaged $1.75 trillion a day in April 2025.

Nobody can look up “the” forward price the way they look up a stock. You ask a bank, the bank quotes, and the quote is spot moved by an interest-rate calculation, plus whatever margin the bank adds. This page works that calculation on real numbers from October 2026, shows 27 years of it, and then sets the private market against the public one that copies it: currency futures.

How it works

A client asks a dealer for a price on a specific amount, currency pair and settlement date. The dealer quotes; the client accepts or walks away, and a contract now exists between those two parties only.

There is no matching engine. No public order book, no queue, no last-trade print. The dealer takes the other side and offsets the risk with another client or another dealer.

The quote starts from arithmetic. For currencies the fair forward rate is the spot rate grown by one currency’s interest rate and shrunk by the other’s over the same days:

forward = spot x (1 + dollar rate x days/360) / (1 + euro rate x days/360)

Then the dealer adds a margin. How much depends on the size, the client and the dealer’s own position. Two clients asking for the same date at the same moment can get different rates, and neither sees the other’s.

A worked example

A real date, real rates. On Friday 23 October 2026 the Federal Reserve’s noon buying rate in New York was $1.1199 per euro. The overnight dollar rate, SOFR, was 3.92%; the ECB’s euro short-term rate (€STR) was 2.442%. Take an American importer who must pay €3,000,000 on Wednesday 16 December 2026.

Count the days. A spot trade on 23 October settles two business days later, Tuesday 27 October. From 27 October to 16 December is 50 days.

Grow and shrink. Dollars: 1 + 0.0392 x 50/360 = 1.005444. Euros: 1 + 0.02442 x 50/360 = 1.003392. Forward = $1.1199 x 1.005444 / 1.003392 = $1.1222 (to four places), 23 pips (0.0023) above spot.

What it costs. Paying at spot would have cost $3,359,700. Locking the forward fixes the bill at $3,366,600 on 16 December, $6,900 more. That $6,900 is not a fee: it is the interest the importer’s dollars can earn for 50 days above what euros earn, handed back through the rate.

Then the dealer’s part, hypothetically. A quote of $1.1232, 10 pips above the arithmetic, would cost $3,369,600, $3,000 more; a quote of $1.1247 would cost $7,500 more. Nothing on a screen tells the importer which quote is fair. The calculation above, and a second dealer, are the only checks.

A public cross-check. CME’s December euro futures, whose trading ends two business days before that same Wednesday, closed on 23 October at $1.1216, 5.9 pips under the arithmetic $1.12219. The gap is small and has known causes: the futures close and the noon rate are struck at different times, and SOFR and €STR are overnight rates, not 50-day ones.

Forward vs spot vs futures

Futures make the forward arithmetic visible. On Friday 30 October 2026 the December 2026 euro futures closed at $1.11865 and the March 2027 contract at $1.12295. March’s third Wednesday comes 91 days after December’s, and March was 43 pips dearer. As a yearly rate: 0.0043 / 1.11865 x 360/91 = 1.52%. The latest published gap between the two overnight rates, from 29 October, was SOFR 3.94% minus €STR 2.439% = 1.50 points.

That match was not a one-day accident. Across the 104 sessions from 1 June to 29 October 2026 in which both contracts traded, the gap implied by the futures had a median of 1.49% a year, against 1.45 points between the two overnight rates; the two figures were within 0.25 points on 91 of the 104 days.

They did not move together, though. Across those sessions the two series had a correlation of -0.39, and their day-to-day changes almost none (0.06), because the futures price in where rates are expected to go over the coming months while the overnight rates move in steps. Every session is in the futures check file.

The original data

27 years of the arithmetic. Running the same calculation every month since the euro began, with 3-month rates (the OECD’s US interbank series and the ECB’s 3-month Euribor) and the Fed’s monthly average spot rate, gives the 3-month forward’s distance from spot in pips. Of the 332 months from January 1999 to September 2026 with all three inputs (the OECD’s US series has no value for April 2020), the euro forward sat above spot in 209 and below it in 123.

It flipped with the rate gap, not with any view of the euro. The forward was below spot from April 2001 to October 2004 and from December 2007 to August 2014 (apart from November 2012), when euro rates were the higher ones. The deepest point was July 2008, 87.21 pips below spot, with US 3-month rates at 2.72% and Euribor at 4.96%.

The forward has been above spot in every month with data since September 2014, 144 of them; the highest was December 2018, 85.47 pips, when US rates were 2.69% and Euribor was negative at -0.31%. In September 2026 it was 37.29 pips.

Checked. The ECB’s Euribor series and the OECD’s euro-area 3-month series, which ends in January 2026, never differed by more than 0.0124 points in 325 shared months. Every month’s rates, spot and forward are in the forward points file.

How big the market is. The BIS Triennial Survey, collected from dealers by central banks in 52 jurisdictions every three years, is the only full count. In April 2025 outright currency forwards averaged $1,747,311 million a day, 18.37% of all $9.51 trillion of foreign exchange trading, behind FX swaps (42.22%) and spot (31.04%).

The BIS preliminary release of 30 Sep 2025 linked part of a 60% rise since 2022 to asset managers selling dollars forward after the April 2025 tariff announcements; the final tables show 50.97%.

Mostly short, and mostly financial. 63.58% of forward turnover was for a month or less. Dealers trading with each other were 39.25% ($685,817 million), other financial institutions 55.91% ($976,956 million) and non-financial companies 4.84% ($84,538 million). Electronic execution was 56.26% and voice 41.10%. All the values are in the BIS outright forwards file.

Every survey since 1992. The BIS Data Portal’s bulk file carries the same net-net series for every survey. Outright forwards averaged $58,499 million a day in April 1992 and $1,747,311 million in April 2025: 29.87 times as much, against 11.64 times for all foreign exchange trading. Their share rose in each of the 11 surveys after 1992, from 7.16% to 18.37%, and the dollar amount rose every time too, including 2001 and 2016, when total turnover fell.

Non-deliverable forwards settle in cash, in a freely traded currency, on the difference between the agreed and the market rate. They have been broken out since 2013, when they were 18.75% of forwards; they peaked at 25.94% in 2019 and were 19.07% in 2025. Every survey’s values are in the BIS forwards history file.

The 2025 totals match Table 1 of the BIS tables exactly, and the tables’ country rows summed to within 3.7% of the bulk file’s net-gross total in every survey from 1995 (country-table check).

What the dealer is doing

Offsetting, mostly. A dealer who sells you euros forward buys them forward from someone else, or buys spot and borrows and lends in the two currencies, which is the same trade built by hand. The 39.25% of turnover between dealers is largely that offsetting.

Its own book moves the quote. A dealer already long euros forward prices to attract sellers, the same behavior a market maker shows on an exchange, only in private. So a quote tells you about the dealer’s position as well as the currency, and in a two-party trade that cost falls on the person asking.

When it fails

Taking the first quote. A company that hedges every month with its usual bank never learns what the arithmetic or a second bank would have said. In the hypothetical quotes above, 15 pips between two dealers on one €3,000,000 hedge was $4,500, and it never shows up as a line on a statement.

Reading the forward as a forecast. In July 2008 the euro forward sat 87 pips below spot only because Euribor was higher than dollar rates; it said nothing about where the euro was going.

Expecting an easy exit. Unwinding usually means going back to the same dealer and taking its price.

Forgetting the other side can fail. A bilateral contract leaves counterparty risk with each party until settlement, which is the main thing the clearing house removes from futures.

Questions people ask

What is meant by forward market?

The private, dealer-quoted market for agreeing a price today on an exchange that settles later, any date after spot. Most of it is currency: $1.75 trillion a day in April 2025, according to the BIS.

What is the difference between forward and futures markets?

A forward is a private contract with a dealer for any amount and date, and each side carries the other’s default risk. A future is a standard contract on an exchange, cleared centrally, for fixed amounts and dates. The pricing arithmetic is the same: on 30 Oct 2026 the euro futures curve implied a 1.52% yearly rate gap against 1.50 points between SOFR and €STR.

Can you provide an example of a forward market?

An importer owing €3,000,000 on 16 December 2026 could, on 23 October, lock about $1.1222 per euro with a bank, $3,366,600 in all, against a spot rate of $1.1199 that day.

What is the difference between spot market and forward market?

Spot settles in two business days at today’s rate. A forward settles later at a rate fixed today, which differs from spot by the interest-rate gap between the two currencies over those days.

Related

Forward contract covers the instrument arranged in this market and the risks of holding one. Bond market covers another large market where dealers quote rather than an exchange posting prices. And liquidity covers what a market without a public order book can and cannot promise.

This page is educational, not financial advice. Test every idea on your own charts before risking money.