All about the Spot trade
Trading in cash on currency markets is called spot (Spot). Spots or spot transactions occupy quite a serious share of the currency market – more than a third of the total volume. This market segment is characterized by high volatility, high risk and high profitability/loss. Actually, the risks of spots are high. But, as practice shows, few people stop the risk of losing everything when you can get high income in a short time.
The main players in the spot market are investment companies and banks, corporate traders and insurance companies. But there are no restrictions on trading and for ordinary traders. All we need to remember is that spot trading is more like a tool for experienced investors, and gaining trading experience is an unreasonable waste of time and money.
What are the spots? In fact, these are exchange transactions that take place under bilateral contracts. That is, one party undertakes to transfer to the other a certain amount of currency assets in exchange for other (not similar) currency assets at a certain rate. The actual change of currency owners will be made only two working days after the transaction (within one working day in the case of the Canadian dollar).
The following concepts are used in dispute trade:
- Quote – the value of a currency unit for a specific time period;
- Ask/offer – current currency purchase price;
- bid is the current price of currency sale;
- spread – the difference in price between the Ask and Bid parameters (points).
The basis of the spot market is trading on the base currencies – U.S. dollars, euros, pounds sterling, Japanese yens and Swiss francs. But also used and crosses of currencies in which there is no USD, and other currency pairs – the Canadian and Australian dollar.
Spot market: strengths and weaknesses
Among the obvious advantages of Forex is the high volatility of the market. It is constantly moving, changing trends and opening tens and hundreds of profitable positions during the day. And the spot deals here are quite relevant.
But spots on Forex have a number of serious drawbacks. In particular, they can easily become a loophole for crooks. If you consider all the drawbacks of spotting on the Forex market, the leaders are among them:
– Decentralized trade. The absence of regulators always has a negative impact on the security of investments. The market artificially created by a broker for a trader carries a lot of dangers. In fact, the intermediary can simply manipulate its clients. And the size of the spot itself will end up being much smaller than you expected;
– …the lack of regulation of the spot. Forex Spot is very poorly regulated, creating a lot of loopholes for crooks. And in case of a conflict or disputable situation there will be nowhere to complain – the market is not regulated by law, and there is simply no arbitration in this system;
– the human factor. Spots attract unscrupulous traders, allowing them to make profit not only from spreads – rewards, but also directly from transactions, sometimes “against” the client, deriving income from multidirectional investment of different clients’ capitals;
– financial risks. A broker can offer an account outside the bank, allegedly “this is more convenient”. In this case, he has the possibility of stealing funds. You want to keep yourself safe? Work only with the participation of a reputable financial institution and do not enter into a contract without making sure that everything is legal;
– a reduced spread. It’s like a bank commission here: no one’s gonna trade under the word of honor. It means that the advertising promise “no spread” already contains a trick – there is a spread, just in this case you have to pay a hidden commission;
– The large size of the leverage can be referred to both as advantages and disadvantages. It should be noted that leverage of 400:1 is a rather risky proportion.