A value date is a future date that is used for determining the present value of a product or security that fluctuates in price. It is the date at which funds, assets, or money's value becomes effective. Typically, value dates are used in determining the payment of financial products and accounts where there is a possibility for discrepancies due to differences in the timing of valuations. Such financial products can include forward currency contracts, option contracts, and the interest payable or receivable on personal accounts.
Value Date in Banking
When a payee presents a check to the bank, the bank credits the payee’s account. However, it could take days until the bank receives the funds from the payor’s bank, assuming the payor and payee have accounts with different financial institutions. If the payee has access to the funds immediately, the receiving bank runs the risk of recording a negative cash flow. To avoid this risk, the bank will estimate the day it will receive the money from the paying institution, and hold the funds in the payee’s account until the expected day of receipt. In effect, the bank will post the amount of the deposit for a couple of days, after which the payee can use the funds. The date the funds are released is referred to as the value date.
Value Date in Trading
When there is a possibility for discrepancies due to differences in the timing of asset valuation, the value date is used. In Forex trading, the value date is regarded as the delivery date on which counterparties to a transaction agree to settle their respective obligations by making payments and transferring ownership. Due to differences in time zones and bank processing delays, the value date for spot trades in foreign currencies is usually set two days after a transaction is agreed on. The value date is the day that the currencies are traded, not the date on which the traders agree to the exchange rate.