Forex spot trading

Spot can be named as an analogue the cash operations. The normative time for making settlements on this is 3 days (this is the maximum). Please note: only working (banking) days are always considered.

Some features of Forex spot

In case of the Forex spot there are several features:

There is no regulator. Of course, the Forex spot is still regulated, but not that strictly. At this moment, this market is just one that is less regulated. This in turn provides the great opportunities to manipulate and increase risks. Please note and remember: if you have some problems with the trading account, there's no one to ask for help and restore the rights. This is because there is no service to control this Forex market segment.

Forex broker is trading against the traders. Many of companies, but not all, charge a fee or commissions for their services. Instead of this, they receive spread. For the brokers it's a guarantee that they receive income from any trader’s order.  Accordingly, when a Company's client makes a decision to sell or buy asset, the broker himself is on the other side of the trade, and if his goal does not coincide with the trader’s goal, the trade will be conducted against each other.

There is no central area. In simple words, the exchange on which it is proposed to trade is built by a broker company. This can be a reason for manipulation by the broker's side. Forex spot volumes are barely visible against the general background, and are depending on the orders number of a particular broker's company, on the size and number of its trading accounts.

If you're not ready to take such risks, you should decline the Forex trading.

How to trade in Forex spot market?

The are several types of contracts in Forex spot trading:

Non-deliverable forward contract (the transaction ends with the settlement, the trading asset does not goes to the buyer ownership).

Deliverable forward contract (the result of a trading transaction is a real asset going to the buyer).

As a rule, Forex trading is non-deliverable one. Otherwise, brokers companies would have to face losses, since the spread is their only earnings.

Making trades

Let’s consider a little example of spot trade.Suppose, we decided to buy one currency lot at the price of two thousand dollars. We place a currency spot or in other words a buy order. Select TOD as the low-cost and the quickest type of the contract. Immediately after the contract is executed, two thousand dollars will be shown on our trade account balance. You can use money for its intended purpose — for withdrawal.

But there is another option that is much more often chosen in the spot market. Currency funds can be resold and you can earn on this. To do this you don't have to withdraw money from the balance, and have to sell them with TOM. At the end of the operation, it is necessary to wait until the next exchange day: TOM will be TOD, the funds will be in the account.

Advantages and disadvantages of the spot market

The spot market has several disadvantages:

Substantial leverage risks. The leverage size of  400: 1 here is a familiar phenomenon;

Lack of control: all risks are limited by the trader. In case of the problems, he / she will have to defend his /her interests on his own, and this is not that easy;

Slippage of asset value at the peak volatility point, which may cause significant losses for the trader.

If we talk about the advantages, then we should highlight the following: increased liquidity (achieved through the instant execution of the contracts). And there are also the volatility and the possibility of excellent earnings on speculation. In comparison with the forward market, the spot market is cheaper.