Spot and Forwards trading

Spot rate

The spot rate for a currency is the current exchange rate for a trade of one currency for another. The spot rate is also termed the cash price, cash rate, or today's rate. Most spot rates are actually traded with two-day settlements to allow for a reasonable amount of time to transfer the currencies for the transaction.

The spot market is a 24-hour, continuous currency exchange that never closes. There are dealers in every major time zone, in every major dealing centre willing to quote two-way markets.

Most transactions in the Forex market are spot rate transactions.

Forward contracts

These contracts are a commitment to purchase or sell a set amount of a given currency at a predetermined price on a given date in the future.

These contacts can by used if you wish to protect the value of a future foreign currency purchase or sale.

A corporation or investor may take out a future contract if an international deal has been agreed at a set currency rate and wants to protect itself against currency fluctuations in the future.

Typically traders determine a forward exchange rate 30, 60, and 90 days into the future.