Spot Date

What is Spot Date?

The spot date refers to the day when a spot transaction is typically settled, meaning when the funds involved in the transaction are transferred. The spot date is calculated from the horizon, which is the date when the transaction is initiated. In forex, the spot date for most currency pairs is usually two business days after the date the order is placed.

What a Spot Date means

A spot date is the day the transaction settles as opposed to the day the trade is executed. The term is most frequently found in reference to forex trades. Stock or options trades may refer to similar terms such as trade date (the day the trade order was executed) and settlement date (a point in time typically three trading days later), but these terms are not the same and have subtly different meanings.

An exception to the usual two-day spot-date guideline is the USD/CAD pair, which settles in one business day because this currency pair is commonly traded and its financial centers are in the same time zone. Furthermore, settlement does not have to occur on the spot date. In a short date forward, for example, the transaction is settled in advance of the regular spot date.

The spot date is also relevant in both a forward contract and a foreign exchange swap contract. For a forward contract, the length of the forward will be calculated out of the spot date. For example, a one-month forward contract will settle one month from the spot date, not from the date of transaction. Similarly, the front leg of a foreign exchange swap will usually be the spot date. 

The spot date is also the date at which there is no alteration of the rate for interest rate differentials. If the settlement date is beyond the spot date, then a calculation for the interest rate discount or premium will be required. Likewise, if a contract is needed to settle before the spot date, either today (TOD) or tomorrow (TOM), the rate will be altered depending on the yield of the two currencies.

Value TOD and TOM have become more prevalent with the improvement in communications and electronic wire transactions. (See also: Forward Rate vs. Spot Rate: What's the Difference?)

Example of a Spot Date Versus a Settlement Date

Imagine a trader decides to execute a forex transaction using Japanese Yen to buy New Zealand Dollars. This would constitute opening a long position in the currency pair NZD/JPY. The trader executes this trade at five minutes before the closing bell on the New York Stock Exchange (NYSE), which happens to correspond to the opening bell of the New Zealand Stock Exchange (NZX). The trade is recorded on Thursday, November 15 (local to the trader).

It won't matter where the trader or the trade order originated, all time zones will track this trade the same way. The Spot Date will be recorded as the date that falls 48 hours later (not including weekend hours when the forex market is closed.

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