FX swap quoting convention

Hi guys... i'm wondering when getting quotes for the same trade from 2 different dealers - how do you read and price out which one is giving a better price?

For example, if trading USD/INR swap, buy INR near leg, sell INR far leg, one broker quotes as:

spot reference: 73.25

swap pts: +103 (mid +96)

far leg: 74.35

However, another broker will quote as:

RHS swap pts: +99 (DF mid +93)

Because India interest rates are higher, I thought that I should be paying points on the far leg? To determine which trade is better for me I should calculate the gain/loss on both legs, and then compare which one is better?

And the quote from dealer #2 i'm not sure how to compare that vs dealer #1?

Thanks!!

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Comments (6)

Most Helpful
  • VP in S&T - FI
Apr 2, 2021 - 1:31am

It's simple, you always talk about the far leg, so if you need to BUy USD/sell INR at the far leg (sell usd near) you look for the cheaper offer, which is the right hand side of a bid offer 

spot reference: 73.25

swap pts: +103 (mid +96)

far leg: 74.35

However, another broker will quote as:

RHS swap pts: +99 (DF mid +93)

you are comparing +103 vs +99, so obviously you are going to buy +99

if it was something like USDJPY, the points will be negative, but you are still buying the far leg(paying offer) if you want to buy USD far

theres no need to compute the pnl on both legs, Becuase the only thing you care about is the fwd points. If you traded with dealer #2, after you agree to buy at +99, you choose a spot rate at the market to base the legs on 

Apr 2, 2021 - 12:48pm
insoolated, what's your opinion? Comment below:

Thanks for the insight... 

So if another example is SELL KRW, BUY USD at near leg, BUY KRW, SELL USD far leg... and the swap pts are 0 vs swap points -300.

I look at the far leg and I am selling USD so I look for the highest numerical swap pts which is 0, correct? However in this case if I was Selling USD near Buying USD far I should take the -300 swap points?

  • VP in S&T - FI
Apr 2, 2021 - 2:26pm

A dealer is going to show a bid-offEr spread, so if they show -300 / 0, that means that you can sell usd far at -300 or buy at 0. You compare to other dealers and sell the higher. If dealer #2 shows -200 / 100, you are going to sell at -200 

Apr 3, 2021 - 12:34am
insoolated, what's your opinion? Comment below:

Thanks - that seems very intuitive to just look at the far leg. So basically to sum it up:

1) look at the points for the far leg in terms of the base currency

2) determine if you're buying or selling base currency. If buying, go for the dealer with lower points. If selling, go with dealer with higher points.

What i still can't wrap my head around is how the spot rate does not matter. If you keep the points the same and change the spot rate (and thus the fwd rate). Your gain/loss on the USD side will change. Or am i thinking about it wrong?

thanks

Apr 3, 2021 - 8:58am
Dawg-nuts, what's your opinion? Comment below:

The reference spot does affect the pnl, but to a much lesser extend compare to the swap points you lock in.

If you sell/buy USD, you would want a higher USD-X spot reference.

Think about it in annualised yield terms, the same 1M swap point over 73.5 USDINR and over 74.5 what is the difference in bps of your hedging cost?

  • VP in S&T - FI
Apr 3, 2021 - 3:11pm

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