Spot Forex Market is also called “spot exchange transaction (spot transaction)”, and in principle, refers to foreign exchange transactions that are delivered two business days after the contract date (contract date) for buying and selling currency. Currently, the delivery date is set to be two business days later (the business day following the contract date) because foreign exchange transactions are conducted across national borders, so paperwork is handled in consideration of the time difference in each country. This is to have a margin above. In addition, as an exception to this transaction, it may be delivered on the day of the contract or the business day following the contract.
In general, there are two types of foreign exchange transactions, “spot” at the present time and ” forward ” at the future time, depending on the timing of currency transfer (settlement of funds) . In addition, there is also a ” foreign exchange swap ” , which is a transaction in which spot forex market and forward trading are combined at the same time in a crossed manner (a transaction in which spot forex market trading is combined with forward trading under the opposite trading conditions) By the way, this term (spot) has the meaning of point, place, point, tarmac on a daily basis, and is also widely used as an abbreviation for spot forex market announcement, spot advertisement, spot news, and spotlight.
The actual situation of foreign exchange transactions and spot trading
There are two types of foreign exchange transactions, “speculative transactions” and “actual demand transactions”. In the world foreign exchange market , speculative transactions account for more than 90% of the total (the foreign exchange market is the largest market in the world). In addition, ” Forex Margin Trading (FX) “, which is popular with individual investors, is a type of foreign exchange trading and is included in speculative trading.
Generally, in forex trading, it is always a combination of “buying one currency” and “selling the other currency”. For example, in a dollar / yen buying transaction, “buy a dollar and sell a yen”, and also a dollar. / Yen selling transaction is a transaction of “selling dollars and buying yen”.
The combination of currencies such as dollar / yen, euro / yen, euro / dollar, etc. is called ” currency pair “, and the currency displayed on the left side is called “base currency”.
- Speculative transactions: Pure profit aiming, counter transactions, liquidity improvement
- Actual demand transactions: Support for economic activities, almost no counter transactions
Disadvantages of traditional trade
Before the 21st century, traditional trade was the main method of trade. The traditional form of trade was that buyers and sellers met directly, reached an agreement on the purchase and sale of commodities, and then closed the deal, paying money in one hand and delivery in the other hand. In traditional trade, bulk commodity transactions are mostly carried out in the form of contracts, and buyers and sellers conduct commodity transactions in the future according to the content of the signed contract. It has the following disadvantages
(1) The price formation is not standardized, and the risk cannot be transferred. Since the signing is based on factors such as the supply and demand situation at the time, it is inevitable that the market price will change in the execution of the contract, which is beneficial to one party and not beneficial to the other party. At the same time, the formation of prices is also largely restricted by regions, so it is difficult to form a fair price.
(2) Credit risk. The inevitability of price risk affects the effectiveness of contract execution, and credit risk is unavoidable in this case.
(3) There are few buyers and sellers, and it is difficult to form a centralized market. The buyers and sellers negotiate and negotiate separately to reach an agreement.
(4) The degree of contract specification is low. Every time a contract is signed, a series of links such as searching for customers, inquiry, preliminary negotiation, and signing must be repeated, and there must be endless debates on factors such as product quality, time, and transportation. Transaction costs increase accordingly.
Spot Forex Market Electronic Trading Edit broadcast
With the advent of the Internet, the world has gradually become a global village,and spot forex market the stage of the new economy. Spot electronic trading (also known as electronic trading of bulk commodities , or spot warehouse receipt trading) is a centralized bidding transaction using a computer network with spot warehouse receipts as the subject matter of the transaction.
The spot forex market warehouse receipt is a kind of certificate representing the ownership of the goods issued by the market to the goods owner after the goods owner has delivered the goods to the designated warehouse.