When you decided to be involved in forex trading, your journey towards discovering the main notes and details of this trade also started. We are certainly confident that by this time, you already have ample knowledge about forex basics such as its definition and types. For today’s entry, we aim to give you an idea about a particular type of forex transaction. This transaction which we are talking about is called spot Exchange. If this term is something new for you or you have heard it but you wish to know more about it, then this entry is for you as we shall give you some important notes that you at least have to be aware of if not master it. Here are 5 Must know facts regarding this field.
Fact 1: Spot Forex is different from forex futures and options
As their names imply, spot forex, futures and options are three different fields in the forex industry. Since these are specific fields or instruments that are used in the market, it goes to show that the three have distinct characteristics. Spot forex is the manner of buying or purchasing currencies right then and there. The term ‘spot’ is attached to forex to indicate that transactions are done in a physical market. One example is when you exchange your local currency for a foreign currency because you need to travel. Forex futures on the other hand are derivative contracts that require both the buyer and the seller to agree at a particular date in the future to perform a transaction at a predetermined price. Similar to futures, options are also derivatives and they share similar trading strategies with futures when trading.
Fact 2: Spot FX trading requires knowledge on currency pairs
Currency pairs are two currencies that are being compared for conversion purposes. In some markets, the pairs are usually matched with their local currencies. one thing that you have to know when trading with currency pairs is the fact that it always involves the base currency and the quote currency.
Fact 3: Buying and selling can be performed in a spot market
Contrary to the belief of some people, the spot forex market is not just a place for buying currencies. it is also a place where you can sell your currencies. Due to this feature, forex trading fanatics have the ability to either short sell or long sell their currencies with this market.
Fact 4: Speculating on currencies is also possible
Technically speaking, speculative trading is an act where the trader takes the risk of conducting a financial transaction that has substantial risk of losing value with a hope that such asset or currency is able to regain its value in the near future. Spot forex markets are places where a speculative trader can day trade. Experts suggest day trading for speculating traders because during these moments, it is expected that spreads are generally lower than having an overnight trade.
With the four notes that we have shared, we certainly hope that you were able to grasp the main features of the spot forex industry.