Introduction  

In the fast moving world of finance, waiting two or more days for spot settlement can be too long for some market participants.
As demand exists for settlement of currency trades before spot date, financial instruments are available to meet that demand. These instruments are short-dated outrights and FX swaps.
Short-dated currency trades allow for settlement to take place before spot. Outrights and FX swaps, the same instruments that are typically used for trades that settle after the spot value date, are also used for short-dated trades.
The prices of these instruments are linked to the spot rate through swap (or forward) points.
Swap points are derived solely from interest differentials. They can therefore be applied to any time period, irrespective of whether it is in the past or the future. The one constraint is that we keep the length of time period for the swap points consistent.
Using the existing swap points for short-dated FX trades is very convenient for market participants. However, some adjustments do need to be made to the swap points before they can be used in a short-dated outright or FX swap.

Topic 1: Pricing Short-Dated Outrights & FX Swaps

Short-Dated Delivery Dates

Forward value dates earlier than one month are referred to as short dates. A pre-spot short-dated trade is an outright or swap trade that might have to be delivered today, two days before spot, or tomorrow, one day before spot.
Contracting to settle the delivery of currencies before the spot value date raises the immediate question as to whether or not this is achievable. The delivery deadlines can be very strict which may make it difficult to achieve good value.
This is a very important consideration and must be addressed before committing to a short-dated trade. Success depends upon meeting certain criteria: