Spot foreign exchange transaction refers to a transaction in which two parties to a transaction sell a currency at the current exchange rate (i.e., spot exchange rate)** in the foreign exchange market, and complete the delivery of the currency within two working days after the transaction. This article will take a closer look at the delivery time and related concepts of spot forex trading.
1.An overview of spot forex trading
Spot forex trading is the most common way of trading in the forex market, which involves the exchange between two currencies, one is the base currency and the other is the counter currency. In a spot foreign exchange transaction, the parties to the transaction exchange currencies at the current exchange rate and complete the settlement within the agreed time.
2.Delivery time
The delivery time for spot forex transactions is usually two business days after the transaction is completed, which is known as the "T+2" delivery system. Here "t" indicates the trading day, and "2" indicates the number of days between the delivery date and the trading day. For example, if a spot forex trade is made on a Monday, the delivery date is usually Wednesday.
However, the delivery time of spot foreign exchange transactions may also change depending on market practice and the parties. For example, in some cases, the parties to a transaction may agree to settle on the same day or the next business day after the transaction, which is known as a "T+0" or "T+1" delivery system.
3.Spot exchange rate
The spot rate refers to the exchange rate of one currency against another in a spot foreign exchange transaction. The spot exchange rate is usually affected by a variety of factors such as market supply and demand, economic fundamentals, and policy factors. In practice, spot exchange rates are usually expressed in the form of "currency pairs", such as the US dollar, the euro (USD), the British pound, the Japanese yen (GBP, JPY), etc.
4.Settlement of foreign exchange transactions
In spot foreign exchange transactions, the parties to the transaction also need to settle after the delivery of the currency has been completed on the agreed delivery date. During the settlement process, the buyer and seller will calculate the settlement amount based on the actual amount of currency delivered and the exchange rate, and transfer funds.
Spot FX transactions are usually settled within two working days of being traded. However, the delivery time is subject to change according to market practice and agreement between the parties. When conducting spot foreign exchange trading, investors should understand the relevant concepts and operating rules to ensure the smooth progress of the transaction.