What is the 'Forex Spot Rate'

The forex spot rate is the current exchange rate at which a currency pair can be bought or sold. The spot forex rate differs from the forward rate in that it prices the value of currencies compared to foreign currencies today, rather than at some time in the future. The spot rate in forex currency trading, is the rate that most traders use when trading with an online retail forex broker.

BREAKING DOWN 'Forex Spot Rate'

The forex spot rate is the most common transaction in the forex market, more so than an FX forward and FX swap. The global forex spot market has a daily turnover of more than $5 trillion, which makes it bigger than both the equity and bond market. 

The standard delivery time for a forex spot rate is T+2 days, which is where there is no adjustment for interest rate differentials. Should a counterparty wish to delay delivery, they will have to take out a forward contract. For example, if a EUR/USD trade is executed at 1.1550, this will be the rate at which the currencies are exchanged on the spot date. However, say European interest rates are lower than they are in the U.S. this rate will be adjusted higher to account for this difference. So if a counterparty wishes to own EUR and short USD for a period of time it will cost them more than the spot rate.

A handful of currencies have shorter spot days, such as USD/CAD and USD/TRY. 

Although the forex spot rate calls for delivery within two days, this rarely occurs in the trading community. Traders that hold a position for longer than two days will have their trades "reset" by the broker, i.e. closed and reopened at the same price, just prior to the two-day deadline. However, when these currencies are rolled there will be a premium or discount attached, depending on the difference in interest rates, via the short term FX swap.

Because the spot rate is the rate of delivery with no adjustment for interest rate differential, it is the rate quoted in the retail market. The retail forex market is dominated by travelers who wish to buy and sell foreign currency whether it through their bank or a currency exchange. 

 

RELATED TERMS
  1. Forex - FX

    Forex is the market in which currencies are traded.
  2. Spot Trade

    A spot trade is the purchase or sale of a foreign currency or ...
  3. Spot Rate

    Spot rate is the price quoted for immediate settlement on a commodity, ...
  4. Forex Hedge

    A forex hedge is a foreign currency trade that's sole purpose ...
  5. Spot Date

    The spot date is the date at which a transaction is settled.
  6. Forex Analysis

    Forex analysis describes the tools that traders use to determine ...
Related Articles
  1. Trading

    Combining Forex Spot And Futures Transactions

    The spot, futures and option currency markets can be traded together for maximum downside protection and profit.
  2. Trading

    Forex Broker Guide

    A Guide To Choosing a Forex Broker
  3. Investing

    Getting Started In Foreign Exchange Futures

    Learn how these futures are used for hedging and speculating, and how they are different from traditional futures.
  4. Investing

    Currency Futures: An Introduction

    Find out why forex market is not the only way for investors and traders to participate in foreign exchange.
  5. Trading

    How To Trade Forex Right Now

    With the expected continued world volatility in the near future, there is a lot of money to be made in the forex market. How can you make the most of it?
RELATED FAQS
  1. How do I convert a spot rate to a forward rate?

    The spot rate shows the cost of executing a financial transaction today, while the forward rate provides the cost of executing ... Read Answer >>
  2. In the forex market, how is the closing price of a currency pair determined?

    The foreign exchange market, or forex, is the market in which the currencies of the world are traded by governments, banks, ... Read Answer >>
  3. What does rollover mean in the context of the forex market?

    In the forex (FX) market, rollover is defined as the process of extending the settlement date of an open position by rolling ... Read Answer >>
  4. Is it possible to trade forex options?

    Yes. Options are available for trading in almost every type of investment that trades in a market. Most investors are familiar ... Read Answer >>
  5. Where is the central location of the forex market?

    There is no central location of the foreign exchange market, often referred to as the forex (FX) market. Transactions in ... Read Answer >>
Trading Center