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What Is Forex Spot Transaction?
One currency is straight away traded for another foreign currency.
You may have often heard of spot transactions, which refer to an outright transaction.
Even in the foreign exchange market, a spot transaction refers to a similar transaction. When one currency is straight away traded for another foreign currency, it is called a spot transaction. The spot rate used to conduct the transaction would be the prevailing market rate or what is called the 'cash' rate.
However, even if the transaction is concluded on the spot, the settlement need not be made then and there. Typically, the payment is made on the second business day after the date on which the spot transaction was carried out between the two parties.
A spot transaction is a useful transaction for an investor or a speculator, allowing him or her to take advantage of any sudden fluctuations in a usually strong currency. Also, since the settlement need not be made that day, they can conclude a transaction on the same day as the changes happen, to take immediate advantage of the situation and then make the payment a day later.