As a person begins investing in Foreign exchanges, he/she has to make certain choices. And as the market is getting vast, the choices are also increasing. The main objective of every person who is willing to invest in the trading market is to earn with foreign exchange trading. But among the various choices, the person has to make a decision that would minimize their potential losses in the FX market.
What do you mean by Spot Transactions?
A spot transaction is the fastest mode of transaction. In this transaction, two parties come to terms to exchange currency at foreign exchange rates at the time of the trade, or popularly termed as “on spot”. This type of transaction takes almost 2 days to settle and still the fastest transaction mode.
Usually, most businesses use a Bank or Non-Bank foreign exchange provider for the spot transaction. In a transaction two terms are included, i.e. Bid and Offer. A Bid is a price on which you will buy the currency. And the Offer will be the price at which you wish to sell your currency. While the price of the currency depends on the exchange rate, it typically differs from the interbank rates. Normally, the interbank FX rates often fluctuate throughout the day. Some of the factors that affect the rates are listed below:
- Currency Pair: The ideal currency pairs are GBP/USD, EUR/GBP, or USD/JPY. The currency pair needs to be exotic as the currency which is not as commonly traded will have a higher spread.
- Volume: It simply signifies that the more you buy, the better the price will be.
- Customer Standing: Businesses are highly dependent on the level of income. So, if the financial products are more, then the providers will offer you a better price for the foreign exchange transactions.
As the factors are determined, the next step is the contract. Usually, businesses choose the forward contract. It is the agreement that binds the parties to exchange one currency for another at a specified point in future which is termed as value date. But instead of making the contract, you can exchange the currency using the spot transaction. This way you will hold the currency on deposit until it is needed. Still, some business prefers to choose the Forward contract as spot transaction have an impact on the cash flow.
Deciding how you would like to make the transactions highly dependent on your personal understanding of the business requirements. Other than that, your risk-taking factor and the nature of foreign exchange exposure will also help you.
If you want to explore the best possible pricing and strong market depth, then you must try to earn with foreign exchange trading with BYFX Global. They provide competitive offers in the market for online FX trading and exchanges. They bring a unique touch to the online OTC Spot Forex and Bullion trading. All investors can place their trades through mobile or desktop easily. All you need to do is Sign Up for BYFX Global and login to indulge in Spot trading.