Spot Forex Trading Quotes and Operating Methods

Spot Forex transactions are becoming more and more frequent and are often used for capital operations of enterprises in Forex business. Because it can not only meet the needs of temporary fund exchange, but also help buyers and sellers adjust the currency ratio of Forex positions and avoid exchange rate risks. So what exactly is spot Forex trading, and how is it quoted and operated? Let’s take a look!

1. The meaning of spot Forex transactions

It is also called spot Forex trading, which refers to the Forex industry that handles delivery within 2 business days after a Forex transaction is completed. It is the most commonly used trading method in the Forex market.

The date on which both parties to the transaction make capital delivery is called the delivery date or value date. Spot Forex transactions can be divided into 3 types according to the delivery date.

1. Standard delivery day: Delivery is on the second business day after the transaction is completed. Most spot Forex transactions currently use this method.

2. Next-day delivery: delivery on the first business day after the transaction is completed. For example, the Hong Kong dollar against the Japanese yen and the Singapore dollar are delivered on the next day.

3. Same-day delivery: Delivery is carried out on the day of transaction. For example, in the Hong Kong Forex market, transactions in which US dollars are exchanged for Hong Kong dollars are delivered on the same day.

Note: The determination of the business day is an important issue in spot Forex transactions! Generally, the "value compensation principle" is followed, which means that both parties to a Forex contract must deliver at the same time to prevent either party from suffering losses due to differences in delivery time.

2. Quotations for spot Forex transactions

Quotation is the key and basis for both parties to conclude a transaction. In the Forex market, the institution that provides transaction prices is usually called a quoter, and Forex banks generally play this role. Correspondingly, other Forex banks, Forex brokers, individuals and central banks that ask for prices from the quoter and conclude transactions at the exchange rate provided by the quoter are called inquirers.

In spot Forex transactions, Forex banks follow certain conventions when quoting.

1. Two-way quotation

Before a Forex transaction is completed, the inquirer usually does not disclose its trading intentions to the quoter, so the quoting bank must quote the buying price and selling price at the same time. The difference between the buying price and the selling price is called the spread. The exchange rate is generally expressed with five significant figures and consists of two parts: a large number and a decimal. The large number is the basic part of the exchange rate, and the decimal is the last two digits of the exchange rate. The smallest unit of market quotation is called a pip.

For example, a bank’s spot Forex quotation is: EUR/USD=1.236 5/1.237 0, where 1.23 is a large number, 65 and 70 are decimals, and the difference 5 between 65 and 70 is a price difference of 8 basis points.

2. Concise quotation

In the international Forex market, Forex traders are very busy, so they will simplify their quotations as much as possible. When quoting through telecommunications, the quoting bank only quotes the last two digits of the exchange rate. Only when a transaction needs to be confirmed or in a market that changes drastically, the quoting bank will quote a large number.

3.USD quotation

Generally, the exchange rates of all currencies are against the U.S. dollar. In the Forex market, the buying and selling prices quoted by Forex trading banks, unless otherwise specified, refer to the ratio of the quoted currency to the U.S. dollar.

4. Quotation by direct pricing method

Quote exchange rate slash, the currency on the left is called the base currency, and the currency on the right is called the quote currency.

3. Operations of spot Forex transactions

A complete spot Forex transaction has 4 steps.

First, the party who initiates the Forex transaction will inquire about the buying and selling prices of the spot exchange rate of the relevant currency after reporting his or her home address. The content of the inquiry mainly includes the transaction currency, transaction amount, and the delivery period of the contract.

Secondly, the trader of the Forex bank who receives the inquiry should fully quote the buying price and selling price of the spot exchange rate of the relevant currency in question.

Then, after receiving the quotation, the inquirer expresses his willingness to buy or sell a certain amount of a currency for a certain period at the quoted price. The quoting bank then commits to the transaction.