Investment instruments

Spot FX

Spot FX is the purchase or sale of foreign exchange “on the spot”, meaning that the exchange takes place at precisely the moment the trade is settled. In spot currency trading, you buy and sell the currency pair at the current market rate, which is referred to as the spot price.

Foreign exchange trading presents a means of speculating on international currencies without taking on ownership of the physical assets.

Spot FX always involves the trading of currency pairs

When you trade spot FX, you trade a currency pair. This means that you buy one currency (base currency) while at the same time selling another (quote currency) because you believe that one of the currencies will strengthen against the other.

Spot FX currency pairs can be bought or sold, meaning the following:

Buying a spot currency pair:

You buy the currency pair, i.e. go long, if you believe that the base currency will appreciate in value against the quote. If, for example, GBP/EUR is trading at 1.1200 with a buy price of 1.1210 and a sell price of 1.1190, you would buy at 1.1210 because you believe that GBP will appreciate against EUR.

Selling a spot currency pair:

You sell the currency pair, i.e. go short, if you believe that the quote currency will increase in value against the base. If, for example, GBP/EUR is trading at 1.1200 with a buy price of 1.1210 and a sell price of 1.1190, you would sell at 1.1190 because you believe that EUR will appreciate against GBP.