2-minutes reading time
As we explained in our FX 101 blog post (read it here), a spot contract is a trade for immediate settlement. The rate is agreed at the point of execution and delivery of currencies is made straight away, usually with a two-day delivery period. It's basically buy now, pay now, and it uses the current market price you see quoted online etc.
Basic Facts
Here's our pick of the basic information you need to know:
- The Spot FX market operates 24 hours a day, 5 days a week
- The market opens on Sunday and closes on Friday, both at 5pm in New York
- Daily trading volume is in excess of $2 trillion
- Spot contracts the second most traded instrument type in the FX market
- Quotes are two-way, meaning the buy and sell prices are quoted at the same time
- The difference between the buy and sell prices is called the 'spread'
- The Bid* price is the price to sell the base currency (e.g. to sell 'GBP' in GBPUSD)
- The Ask* price is the price to buy the base currency (AKA the 'offer')
- Prices are typically quoted to four decimal places
- The last two decimals are the points or 'pips', the first three are the 'big figure'
- For example, for a price of 1.2512: '1.25' is the big figure, and '12' is the pips
- Most spot trades settle on a T+2 basis, that is Trade Date + two days
*If you're wondering why they're called 'bid' and 'offer/ask,' it's the prices that the bank/price-maker will bid for, or offer out, the base currency.
Need a hand?
FX can be complex and confusing, and we really don't help matters with the language and terminology we use day-to-day in markets. Hopefully, this short article has given you what you need to know to understand What is an FX Spot Trade?
Our philosophy at Oku Markets is to educate our customers and democratise solutions. This means no smoke and mirrors, and complete transparency with pricing and how markets operate.
You can contact us for a review of your currency processes and for our guidance and suggestions at [email protected] or 0203 838 0250.
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