What is the Spot Market?
Updated: March 28, 2012 at 4:53 AM
Spot Market Definition. The Spot Market, or commonly referred to as the "cash market" or "physical market", is a market where foreign currencies and commodities are bought and sold for cash at the current market price, settled "on the spot" and delivered immediately. Spot forex is typically transacted with a "2-day value date", an international convention due to time zone differences and the need for banks to communicate cross-border to perform the transaction. Occasionally a "1-day value date" can be achieved when the complete trade is near or within the same time zone, as with USD trades for the Canadian Dollar of the Mexican Peso. If a position is left open overnight, a forex broker will typically rest the value date two business days out by closing and reopening the position at the same price, thereby preventing the actual delivery of currency to take place. The Spot Market accounts for nearly 35% of the total volume exchanged on the foreign exchange market, which consists of two tiers. The Interbank Market consists of large banks and financial institutions that act as "wholesalers" or "market makers". The other tier is Retail Forex, consisting of private brokers and traders dealing through intermediaries. Trading begins in Wellington, New Zealand and follows the sun to Sydney, Tokyo, Hong Kong, Singapore, Bahrain, Frankfurt, Geneva, Zurich, Paris, London, New York, Chicago and Los Angeles before starting again, each Monday through Friday.
Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.