Detect the hidden bank margin
A hedge has a computable price: a forward rate follows from spot and the interest-rate differential, an option premium from quoted volatility. Upload your bank's quote or enter its parameters — the pricer shows the theoretical price and the gap applied.
Which product do you want the margin on?
Each product is checked differently. Spot is compared to the market at that moment; forwards and options are read off your bank's proposal.
How this pricer computes the theoretical price of your hedge
The price of an FX hedge is not a matter of opinion: it is computed. A forward rate follows from the spot rate and the interest-rate differential between the two currencies; an option premium additionally follows from the implied volatility quoted in the market. Those inputs are observable, so the theoretical price is observable too.
The gap between that theoretical price and the price your bank quotes is the bank's remuneration. This pricer does nothing more than make that gap visible.
- 1It takes the reference spot rate
The mid rate of the pair — between the market's bid and ask — at the moment of your transaction. That is the starting point, not the rate displayed by your bank.
- 2It computes the forward points
The gap between spot and forward relies on no forecast: it is anchored on the funding-rate differential between the two currencies over the period — not on central-bank policy rates. Forward points are themselves quoted instruments, with their own bid and offer: the calculation gives the reference, not the last point.
- 3For optional products, it adds implied volatility
An option premium depends on the spot rate, the strike, the maturity, both interest rates and the implied volatility quoted for that maturity. The reference model in FX is Garman-Kohlhagen, an adaptation of Black-Scholes to the two rates of a currency pair.
- 4It compares, and shows the gap
The reference price against the price you were quoted. The difference, as a percentage of notional and in euros, is mostly the margin applied to your transaction — the remainder going to the market itself, through the bid/offer on forward points and the cross-currency basis.
The forward rate formula, with a full worked example
This is the calculation most finance departments are looking for, and it fits on one line. For a pair whose first currency is the base and second the quote currency:
Forward rate = Spot rate × (1 + r_quote × n / 360) ÷ (1 + r_base × n / 360)
- Spot rate
- — the market mid rate at the time of the transaction
- r_quote
- — the interest rate of the quote currency (USD in EUR/USD)
- r_base
- — the interest rate of the base currency (EUR in EUR/USD)
- n
- — the number of days to maturity
- EUR/USD spot rate
- 1.0850
- USD 6-month interest rate
- 4.10%
- EUR 6-month interest rate
- 2.15%
- Maturity
- 180 days
- Theoretical forward rate
- 1.0955
- Forward points
- +105 points (premium)
- Rate quoted by the bank
- 1.1010
- Gap, i.e. the margin
- 0.50% — about €4,560
Illustrative figures, chosen so the calculation can be reproduced. The point is not the margin level, which varies from one file to the next, but the fact that a gap can be measured: apply the formula to your own quote and you get the same kind of comparison. That gap is overwhelmingly margin on a major pair at a common tenor; it also contains the market's bid/offer and the cross-currency basis.
A forward rate above spot is said to be at a premium; below spot, at a discount. The direction depends solely on the interest-rate differential between the two currencies, never on an expectation about where the pair is heading. A bank justifying an unfavourable forward rate by « market expectations » is describing its own product poorly.
What you can check, product by product
| Product | What the pricer recomputes | Where the margin sits |
|---|---|---|
| Spot FX | The market mid rate at the time of the transaction | In the gap between that rate and the one applied to you |
| Forward, NDF | The theoretical forward rate from both rate curves | In the forward points, never on an invoice line |
| FX option (call, put) | The theoretical premium via Garman-Kohlhagen | In the volatility used to compute the premium |
| Collar, participating forward | The value of each optional leg, then their sum | In the shift of the guaranteed rate, since no premium is paid |
| Knock-in / knock-out barrier | The price of the structure with its barrier condition | In the improved rate displayed, hard to recompute without a model |
| Accumulator, TARF | The sum of the conditional flows in the schedule | In the leverage, invisible while the market stays favourable |
Frequently asked questions about pricing an FX hedge
The questions executives and finance teams ask most often before using the pricer.
How do you calculate a forward exchange rate?
Multiply the spot rate by the ratio of the two currencies' compounding factors over the period: spot × (1 + quote-currency rate × n/360) ÷ (1 + base-currency rate × n/360), where n is the number of days to maturity. Use each currency's funding rate over the tenor, not central-bank policy rates. The result relies on no forecast, but it is the theoretical anchor rather than the exact traded price: forward points are quoted with their own bid and offer.
What are forward points, and what do premium and discount mean?
Forward points are the gap between the forward rate and the spot rate. When the forward is above spot the currency trades at a premium; below spot, at a discount. The direction follows solely from the interest-rate differential: the higher-yielding currency trades at a discount against the other. It is not a market forecast.
How can I tell what margin my bank applies on a hedge?
By recomputing the reference price from the market inputs of the moment and comparing it with the quoted price. The gap gives its order of magnitude: it is overwhelmingly margin on a major pair at a common tenor, less clearly so on an illiquid currency or a long maturity, where the market's own bid/offer and the cross-currency basis weigh more. That is what this pricer does: upload your bank's quote or enter its parameters, and it shows the reference price and the gap.
Why does the rate I compute differ from my bank's quote, even without margin?
For three reasons that are not its remuneration. Forward points are quoted on the FX swap market with a bid and an offer: there is one price to buy and another to sell. Each currency's actual funding rate differs from the reference rates you looked up. And the cross-currency basis means interest-rate parity does not hold exactly. These gaps stay modest on a major pair at three or six months, and become significant on an illiquid currency, a long maturity or a quarter-end.
Is the pricer really free?
Yes, and with no account to create. It is open because measuring the margin is our way in: a finance department that has quantified what it pays is in a position to negotiate, whether or not it then works with us.
Do I have to upload a document, or can I enter the parameters manually?
Both work. You can upload the quote your bank sent you — the pricer extracts the parameters — or enter them directly: pair, direction, amount, maturity, quoted rate, plus strike and any barriers for optional products.
How is an FX option premium calculated?
Through the Garman-Kohlhagen model, which adapts Black-Scholes to FX by incorporating both currencies' interest rates. The inputs are spot, strike, maturity, both rates and implied volatility. That last input is the hardest for a company to verify, and therefore the one where a gap most easily goes unnoticed.
Is a zero-premium product, such as a collar or participating forward, free?
No. No premium does not mean no cost: the bank's remuneration has been moved into the level of the guaranteed rate, where it cannot be read without repricing each optional leg. These structures are precisely the ones where the margin can become very significant and exceed 2% of notional.
Is my data retained?
The calculation exists to produce your result, nothing else. We sell no data and pass your bank quote to no third party. If you would rather upload nothing, entering the parameters manually gives exactly the same result.
When should I check the price: before or after signing?
Before, whenever possible: a quote can still be renegotiated until it is accepted. Checking afterwards keeps its value too — it builds the quantified track record that a renegotiation of terms rests on, and it is that file, rather than a general request, that moves a bank.
Read further
The theoretical price shown is an estimate computed from market data. It is neither a quote, nor investment advice, nor a personalised recommendation. Only your counterparty's firm quote binds them.