To trade foreign exchange cash (spot) accounts for about 37% of the total volume of Forex trading. This market is characterized by high volatility and quick profits (and losers). Basic, in terms of transactions, market participants spots are commercial and investment banks, followed by insurance companies and corporate traders. However, this market is completely open to any individual traders.
The deal on the spot market is actually a two-way contract in which one party sends a certain amount of the currency in exchange for the other party a specified amount of another currency, calculated on the basis of an agreed exchange rate, within two working days from the date of the transaction. The exception is the Canadian dollar, the transfer of which takes place on the next business day.
The name “spot” or cash currency exchange does not mean necessarily that the exchange transaction takes place on the day of the transaction. The two-day deadline for the transfer of currency was established long before the technological breakthroughs in the field of telecommunications. This period of time was needed to comply with the contracting parties of all details of the transaction. With all perfection, in terms of technology, advanced forex, it is impractical further reduce the time available for calculations because mistakes happen and now performers that should be considered before all operations.
With a deal on the spot market bank serving the trader, said last quotation of the currency against the U.S. dollar or other currencies (quota), consisting of two digits (for example, USD / JPY = 133.27/133.32, or what is the same, USD / JPY = 133.27/32). The first digit (the left part of the quota) is bid’a the price at which the trader sells, and the second (right-hand part of the quota) is called the ask, or offer – the price at which a trader buys a currency. The difference between the ask – and bid – prices is called a spread (spread). Spread, like any other change in the price, measured by the number of points (points, or pips).
Most of the volume of trade in the spot market transactions are sale and purchase of major currencies, which include the U.S. dollar, Swiss franc, British pound, Japanese yen and the euro. In other currencies, occupying a significant sector size on the spot market are the Canadian and Australian dollars. Also notable is the share of currency crosses – transactions in which foreign currencies valued in currencies other than the U.S. dollar.
For the spot market is characterized by high levels of liquidity and volatility. So, within the global trading day (24 hours), the euro / dollar could change 18 thousand times, “taking off” at 100-200 points for a few seconds when the market was under the influence of sensational news. However, the rate may remain almost unchanged for a long time, even hours if a trading market practically ceased, and its opening on the other only expected. For example, there is a technical trading window between 4 h 30 min and 6 h pm EDT U.S.. Most of the trades in the spot market is the United States between 8 am and noon, when the same trading time in New York and evropeyskoto markets (see Fig. 1.3). In the absence of international trade support market activity in New York drops sharply, by almost 50%. The volume of trade is limited to night, because not all banks have night shifts. Most of these reports are available nightly application (overnight orders) from traders in their branches or other banks, which are at this time in working time zones.
The reasons for popularity of the spot market, in addition to rapid implementation due to the volatility of open positions, is also a short term of the contract, so that the danger of the risk credit is limited in this market.
Gains and losses may be realized and unrealized. Realized gain or loss – is a certain amount recorded at the closing position. Unrealized gain or loss – is uncertain amount that will create about the current position when it is closed at the current rate. Unrealized gain or loss is constantly changing with the change of the course.