Spot Trading

A spot trade is the process of buying or selling a financial instrument, foreign currency or commodity for immediate delivery. A spot trade can be made over-the-counter or through an exchange, and can generally operate wherever an infrastructure to conduct the transactions is present.

When people use the term “spot trading,” they are, more often than not, referring to the spot forex market in which currencies are traded all over the globe electronically. Forex spot contracts are one of the most popular. They are usually delivered within two business days, which contrasts to the spot trading of other financial instruments, which are typically settled the following business day. The spot forex market trades electronically across the globe with a large market share, far larger than the interest rate and commodity markets.

When it comes to the forex markets, we know that foreign exchange rates are quoted in pairs. It is important for us to know exactly which currencies are being referenced in these pairs. The term “forex majors” is used in reference to the most frequently traded currencies in the world, with the list typically including the US Dollar (USD), Euro (EUR), Japanese Yen (JPY), British Pound Sterling (GBP), Australian Dollar (AUD) and Swiss Franc (CHF).

There are 4 forex pairs which are categorized as “major pairs” and are the most widely traded currencies in the forex market. They are: the Euro and US Dollar (EUR/USD), US Dollar and Japanese Yen (USD/JPY), British Pound Sterling and US Dollar (GBP/USD) and US Dollar and Swiss Franc (USD/CHF).

The US Dollar and Euro combination is the most widely traded currency pair, followed by the US Dollar and Japanese Yen pair, so on and so forth. Many consider the above 4 forex pairs as the prime moving forces of the global forex market, with them having the largest total trading volume on a day-to-day basis.

By definition, a currency crosses are a pair of currencies traded in forex which does not include the US Dollar. In other words, one foreign currency is traded for another without first having to convert the currencies into the US Dollar. In the past, if traders wanted to exchange an amount of money into a different currency, they would first be required to convert that amount of money in US Dollars, which was then exchanged into their currency of choice. Cross currencies allow individuals and traders to skip that step of the process.

With the introduction of crosses, traders no longer have to make complex and time-consuming exchange calculations on their own as the direct exchange rates between these currencies are widely available. The most active crosses are derived from the three major non-US Dollar currencies: the Euro, the British Pound Sterling and the Yen.

The graph below displays a list of the different major and cross currencies and their respective symbols.

In addition to being able to trade stocks in a company, traders can also purchase and sell what is called an index. You are able to buy and sell an index the same way you will be able to buy and sell an individual share. The distinction is that an index comprises a group of companies and bases its price on an average share price of the whole group.

An example of an index would be the price of Standard and Poor’s 500 (S&P500), which is a US index and is based on the share price of 500 different companies. There are many different types of indices available in the financial markets, and each use different formulas to determine the price of the particular index. Different sectors also offer differently specialized indices. The NASDAQ Biotechnology Index, for instance, comprises only biotechnology research companies.

When it comes to indices, you can approach the buying and selling of them the same way you would an individual share, using them to create for yourself a view on the overall economy, market sentiment or business sector.

Spot gold (XAU) and spot silver (XAG) are tradable commodities offered by Fort at highly competitive spreads. Similarly to trading spot forex, trading spot metals allows traders to hold short or long positions on previous metals such as gold and silver, and is a great way for all traders to diversify their portfolio. As there is no centralized marketplace for spot gold and/or silver trading, it is available 24 hours a day, every single day of the business week.

Spot gold is more valuable than spot silver. Nevertheless, both gold and silver experience strong movements. There are 3 primary reasons why traders choose to trade spot metals: Firstly, trading spot metals creates excellent opportunities for hedging in every liquid market, with traders gaining more exposure with limited risk. Secondly, trading spot metals is considered a reliable and safe investment, making it a great option in periods of economic uncertainty. Thirdly, traders can take advantage of trading spot metals as an emerging asset class in a bigger and well-balanced trading portfolio.