A foreign exchange spot transaction, also known as FX spot, is an agreement between two parties to buy one currency against selling another currency at an agreed price for settlement on the
spot date. The
exchange rate
In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of t ...
at which the transaction is done is called the spot exchange rate. As of 2010, the average daily turnover of global FX spot transactions reached nearly US$1.5 trillion, counting 37.4% of all foreign exchange transactions.
FX spot transactions increased by 38% to US$2.0 trillion from April 2010 to April 2013.
Settlement date
The standard settlement timeframe for foreign exchange spot transactions is
T+2
T2, T-2, T2, T2 may refer to:
Computing
* Apple T2, a SoC from Apple for security and hardware management within Intel based Macs
* Palm Tungsten T2, a Palm OS-based personal digital assistant
* T2 or T-2, a 6.312 Mbit/s T-carrier in telecommuni ...
; i.e., two business days from the trade date. Notable exceptions are
USD/
CAD
Computer-aided design (CAD) is the use of computers (or ) to aid in the creation, modification, analysis, or optimization of a design. This software is used to increase the productivity of the designer, improve the quality of design, improve c ...
,
USD/
TRY,
USD/
PHP,
USD/
RUB, and offshore
USD/
KZT and offshore
USD/
COP and
USD/
PKR currency pair
A currency pair is the dyadic quotation of the relative value of a currency unit against the unit of another currency in the foreign exchange market. The currency that is used as the reference is called the counter currency, quote currency, or ...
s, which settle at T+1.
Majority of SME FX payments are made through Spot FX, partially because businesses aren't aware of alternatives.
Execution methods
Common methods of executing a spot foreign exchange transaction include the following:
* ''Direct'' – Executed between two parties directly and not intermediated by a third party. For example, a transaction executed via direct telephone communication or direct electronic dealing systems such as
Reuters
Reuters ( ) is a news agency owned by Thomson Reuters Corporation. It employs around 2,500 journalists and 600 photojournalists in about 200 locations worldwide. Reuters is one of the largest news agencies in the world.
The agency was est ...
Conversational Dealing
* ''Electronic broking systems'' – Executed via automated
order matching system
An order matching system or simply matching system is an electronic system that matches buy and sell orders for a stock market, commodity market or other financial exchange. The order matching system is the core of all electronic exchanges an ...
for foreign exchange dealers. Examples of such systems are
EBS EBS may refer to:
Broadcasting
* EBS TV (Ethiopia)
* Educational Broadband Service, US TV service
* Educational Broadcasting System, South Korea
** EBS 1, a South Korean television channel
* Emergency Broadcast System, former US Warning system
...
and
Reuters Matching 2000/2
* ''Electronic trading systems'' – Executed via a single-bank