Hi guys… just calculating the fwd points for the EUR/USD and is there a reason the calculation per the interest rate parity does not really equal what you get 1) per the FRD in bloomberg 2) an actual executed trade.
is it just market dynamics or something? I always thought you just buy a fwd you just negotiate on the spot and the fwd is priced with that formula. But it seems there is a bid/ask for points as well?
thanks
Interest rate parity doesn’t work in real life. There are many market forces that drive FX forwards away from parity value, like country specific risk premiums, plain hedging activity, anticipated Central Bank activity, and a lot of other things.
For your second question: when you trade an FX forward, the prices are expressed in the forward points, like you observed. When you execute the trade, your price will be tied to some supposedly neutral Spot price, which should be displayed in your quoting system.