Aggregating Multi-Date FX Swap Points and Quoting Conventions
Summary
The document asks how a foreign exchange swap with near and far legs, or several value dates, can be represented by a single price. The response explains that FX swap points reflect the interest-rate differential embedded in exchanging currencies across dates. Where the legs share a consistent direction and currency pair, their differentials may be combined to express an aggregate cost of switching the cash flows.
It also introduces the single spot portfolio convention for a multi-date transaction in one currency pair. A quote can show one spot rate together with points and all-in rates for each non-spot value date, preserving the cost associated with each leg. This provides more detail than collapsing all legs into one net number and can help a client compare pricing across providers. The discussion is an informal explanation; aggregation depends on consistent leg orientation, dealt currency, and the transaction’s exact conventions and amounts.
Key ideas
- FX swap points represent the rate differential associated with exchanging currencies across value dates.
- Consistently oriented legs in one currency pair can be combined to express an aggregate differential.
- A single spot portfolio quote can pair one spot rate with points and all-in rates for other value dates.
- Showing each date’s pricing preserves information about the cost of individual cash flows.
- Aggregation conventions depend on leg direction, currency pair, and transaction details.
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# Pricing of swaps # Pricing of swaps I have a (hopefully) elementary question about forex swaps. Most feeds will have a near and a far leg (or more legs for more exotic swaps). I appreciate that "buying the swap" involves locking in multiple transactions at different points in time, with different rates. Is there a convention for representing these multiple prices as a single price? After all, spreads/strategies are presented with a single price to buy or sell, based on its legs. Is it something like (near price - far price), or the inverse? If so, how does this work for swaps with six legs containing different amounts at each leg? ## Answer by rupweb (score 2) https://quant.stackexchange.com/a/24903 From my FX trainer the swap points reflect the differential in interest rates between the 2 currencies. If the trade was on the RHS the market maker would be giving up the currency with the higher interest rate (points my favour) and receiving the currency with the lower interest rate. The swap provides both parties with an accurate cost of switching such cash flows. Here, you're trying to take a differential across 6 value dates. So provided everything is the same way around I don't see why you can't do as you've said and subtract any number of differentials into 1 aggregate, and get a total cost to switch all the cash flows. However, from here there is something called a single spot portfolio (SSP) being "an FX deal involving one or more legs in a single currency pair on any combination of value dates. The dealt currency should be the same for all legs. SSP price quotes typically have four components: a spot rate, the FX points for each of the non-spot value dates, and the all-in rates for each of the non-spot value dates." And again "A foreign exchange transaction or "deal" involving multiple value dates for a single currency pair. The Provider quotes a single spot rate (hence the name) together with FX points for each value date." So in a professional implementation of what you're talking about, as a client you'd want to see each differential between spot and the far date(s). So you can see an accurate cost of each cash flow in the deal, I guess. Perhaps compare these costs with other providers.
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