Spot Trade

A spot trade is a transaction between two parties – the buyer and the seller – at the “spot rate”. It is the simplest form of foreign currency exchange and is completed there and then, at the present market value. In the foreign exchange market, spot settlement normally occurs two banking days after the date of transaction (T+2) for the currency pair traded.

When a company, or an individual, needs to exchange currencies, they may trade at spot or, in the case of an FX payment due at a future date, also with forward contracts. The latter option would allow the purchaser to lock in an exchange rate similar to the spot rate, in order to complete the trade at a later date safe in the knowledge that the price will remain the same. That way they can hedge their payable or receivable against exchange rate volatility in the interim.