Audited 31 Jul 2026·Last updated 28 Oct 2026·3 citations·Tier 2·0 uses

Forward Premium Calculator

Turn a spot and an outright forward exchange rate into an annualized forward premium or discount, using your forward term in days and a 360 or 365-day year.

Forward Premium Calculator

days
days
Annualized forward premium / discount
7.2727
The forward's percentage gap from spot scaled to a full year on your day basis; positive is a premium, negative a discount on the base currency.
Model scope
Signed quote comparison, not trading or hedging advice; spot and forward must use the same currency orientation and settlement convention, while bid/ask, points scaling, compounding, holidays, collateral, credit, and covered-interest-parity inputs are outside it.

Background.

A forward exchange rate is rarely the same as today's spot rate. If euros cost 1.10 dollars for delivery in two days but 1.12 dollars for delivery in three months, the euro is trading at a forward premium against the dollar; if the forward were below spot, it would be at a discount. The gap on its own is hard to compare across contracts, because 2 cents over three months is a very different thing from 2 cents over a year. Annualizing it puts every tenor on the same footing as an interest rate.

That comparison is not a coincidence. Under covered interest parity, the forward gap between two currencies reflects the difference between their interest rates for the same term: the currency with the lower rate trades at a forward premium, the one with the higher rate at a discount. An annualized premium of about 7% on the euro therefore says, roughly, that dollar deposits for that term are paying about 7 percentage points more than euro deposits. Treasurers use the figure to see what hedging a future payment really costs, and analysts use it to read rate expectations out of currency quotes.

The result here is a simple, uncompounded annualization: the percentage gap is scaled by the ratio of the day-count year to the term. The sign is kept, so a positive answer is a premium on the base currency and a negative one a discount.

Two details trip people up. The forward must be an outright rate, not the forward points a dealer screen shows, and both rates must be quoted the same way round. Flip EUR/USD to USD/EUR and the premium becomes a discount of slightly different size, because the percentage is now measured from a different base.

What is forward premium calculator?

The forward premium is the percentage by which a forward exchange rate exceeds the spot rate, expressed per year. With both rates quoted as units of the quote currency per one unit of the base currency, a forward above spot is a premium on the base currency and a forward below spot is a discount. Annualizing divides the raw gap by the fraction of a year the forward covers, using the money-market day-count convention you choose.

How to use this calculator.

  1. Enter the spot rate as quote currency per unit of base currency, for example 1.10 for EUR/USD meaning 1.10 dollars per euro. Use mid rates unless you specifically want the cost on one side of the market.
  2. Enter the outright forward rate in the same orientation. If your source shows forward points, convert first: points are counted in the last quoted decimal, so 200 points on EUR/USD is 0.0200 and the outright is 1.1000 + 0.0200 = 1.1200.
  3. Enter the forward term as the number of calendar days from the spot value date to the forward settlement date.
  4. Set the annual day basis to the money-market convention for the currencies involved: 360 is standard for US dollar and euro rates, 365 for sterling. Using the same basis as the interest rates you plan to compare against keeps the figures consistent.
  5. Read the sign of the result: positive is a forward premium on the base currency, negative a forward discount.

The formula.

annualized premium% = (F-S)/S × basis/days × 100
F · outright forward rate, same quoting direction as spotS · spot rate, quote currency per unit of base currencyD · days from spot value date to forward settlementB · day-count basis for one year, usually 360 or 365

Annualized premium (%) = (F − S) ÷ S × B ÷ D × 100. F is the outright forward rate, S the spot rate, D the number of days to forward settlement and B the day-count basis that defines a year. The first part, (F − S) ÷ S, is the percentage change from spot to forward over the term itself. Multiplying by B ÷ D scales that change to one year in a straight line, without compounding: a 90-day gap on a 360-day basis is multiplied by 4. Short terms magnify small gaps, so a few pips of noise in a one-week forward can swing the annualized figure far more than the same noise in a one-year forward. Choosing 365 instead of 360 raises the result by about 1.4%. All four inputs must be positive.

A worked example.

Example

Spot EUR/USD is 1.10 and the 90-day outright forward is 1.12, on a 360-day basis. The forward sits 1.12 − 1.10 = 0.02 dollars above spot. As a share of spot that is 0.02 ÷ 1.10 = 0.0181818, or about 1.82% over the 90 days. A 360-day year holds 360 ÷ 90 = 4 such periods, so the annualized forward premium is 0.0181818 × 4 × 100 = 7.2727%, which the page shows as about 7.27% — the euro is at a premium against the dollar. Quote the same pair the other way round, as dollars in euros (spot 1/1.10, forward 1/1.12), and the result is −7.14%: a discount on the dollar, slightly smaller in size because in that orientation the same 0.02 gap works out as a share of 1.12 rather than of 1.10.

term Days90
spot Rate1.1
annual Day Basis360
forward Rate1.12

Frequently asked questions.

What does a forward premium tell me about interest rates?
Under covered interest parity, a forward premium on a currency means it has the lower interest rate of the pair for that term, and the annualized premium approximates the rate difference. A 7.27% premium on the euro suggests dollar rates for the period are about 7 percentage points higher. Real markets deviate somewhat because of funding costs and credit.
Why do I get a different number when I invert the currency pair?
The premium is a percentage of spot, and inverting changes which rate is the base. In the default example EUR/USD gives +7.27% while USD/EUR gives −7.14%. The sign flips because one currency's premium is the other's discount, and the size differs because the same gap is divided by a different starting value.
Can I enter forward points instead of the forward rate?
Not directly; the page expects an outright forward. Convert points by placing them in the last quoted decimal and adding them to spot, or subtracting when the points are negative. For most pairs one point is 0.0001, so 200 points equals 0.0200; for yen pairs quoted to two decimals one point is 0.01.
Should I use a 360 or 365-day year?
Match the day count of the interest rates you want to compare with. Dollar and euro money markets count 360 days, sterling counts 365. On the example inputs, switching from 360 to 365 moves the result from 7.27% to 7.37%, so the choice matters when you are comparing against a quoted deposit rate.
Why is the annualized figure so large for short forwards?
Scaling by the basis divided by the term magnifies short tenors. A one-week forward is multiplied by more than 50 to reach a year, so a tiny gap, or a rounding of the last pip, becomes a large annual percentage. Treat annualized premiums on very short forwards with caution and compare like tenors.
Is the annualized premium compounded?
No. It is a simple-interest annualization, the convention used for money-market rates under one year. Compounding the example's 90-day gap four times would give about 7.47% rather than 7.27%. If you are comparing against a compounded annual yield, make that adjustment yourself.

References& sources.

  1. [1]CME Group, FX Futures and Forward Pricing.
  2. [2]BIS Triennial Central Bank Survey, FX definitions.
  3. [3]BIPM, The International System of Units (SI Brochure), 9th ed., version 3.01, coherent derived units and quantity equations.

How this page was produced

Published by
Quanta Calculator
Overseen by
Daniel, Quanta Calculator Researcher
Primary sources
3 cited below
Method
annualized premium% = (F-S)/S × basis/days × 100
Published
Last verified

Built with AI assistance and verified by automated tests against the cited sources — every worked example on this page is computed by the same code that runs the calculator. How we build and check calculators.

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