The premium pips added to the current or spot exchange rate in order to reach at a forward price for a FX forward contract (outright forward contract). It may also refer to the discount pips that are subtracted from the current or spot exchange rate to calculate the FX forward price. Forward points may also be used for calculation of forward price/ rate in a foreign currency swap. In equation form:
Outright rate = spot + forward points
Forward points correspond to the interest rate differential in a currency pair.
Forward points reflect the time value (TV) adjustment made to the spot rate (of a currency pair) in an attempt to define its possible level at a future date.
By definition, pips are the fourth decimal point in a currency quote (conceptually equivalent to basis points or one-hundredth of a percent, 0.01%, where 100 basis points are equal to 1%.)
