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Spot Transactions


Forex is a spot market for currency. It does not deal with the futures market, where you buy a contract to acquire a particular currency at a future price in time. So, spot trading is a Forex market term which can be described as sale or purchase of a foreign currency or commodity for instantaneous delivery or in a maximum speed with a minimum interval. Foreign-exchange contracts are the most common kinds of spot trades. These contracts are settled electronically, that is why the Forex market is essentially instantaneous and does not take longer of the usual duration.


Any Forex trader having specific knowledge should know that the price, with which s/he buys or sells, is itself a spot price. The extent of spot trading is quite high, and the volume gets higher year by year. It is known that 30% of dealing volume is for spot transactions. In this type of trade the counterparties make arrangement to a particular rate of exchange and an amount on the transaction date for the exchange of currencies to happen on the spot value date. Thus, on the particular date one party sends the established amount of one currency to the other party, who in his/her turn sends the arranged amount of the other currency to the first party. Generally one amount, expressed in the base currency, is set at the time of the spot transaction while the other amount, expressed in the quoted currency, is calculated according to the agreed exchange rate. To better understand the term, it is worthy to describe some terms which are tightly connected with it. Such terms are spot value and spot exchange rate.


Spot Value is the common designation for the time frame that is usually employed to describe the period between the creation of a contract and the actual remittance of payment that completes the terms of the contract.


The Spot Exchange Rate or the rate at which currencies can be exchanged for value spot is the most actively traded price at which a certain currency pair can be exchanged. It very often fluctuates significantly over time, and usually presents itself the greatest risk to a foreign exchange position.


To summarize, it can be mentioned that spot trading. compared to future trading, is an immediate trade at a given spot price. The profit of this type of trading is determined by the Forex value of the currencies.


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