Losing The Points

"Losing the points" is a currency trading term that describes a situation in which the buying price in the forward market is lower than the selling price in the spot market. A trader is losing the points when he or she buys at one price now and then agrees to sell for less in the future.

Losing the points means thatthe difference between a bid and the current value of the investment yields a negative return.

How does losing the points work? For example, suppose that Peter buys the British pound at an exchange rate of $2.2345 (USD) per pound in the spot market and enters into a forward contract to sell the pound back at $2.2300 per pound in one month. Peter is losing the points – in this case the 0.0045 dollars per pound.

When one must deliver the underlying currency on the futures contract, losing the points guarantees a loss because one sells the currency at a rate lower than the one at which one bought it. Obviously, losing the points is inadvisable.

The opposite of losing the points is "earning the points."