A Short Explanation on Spot Forex Trading

A Short Explanation on Spot Forex Trading

Spot forex is something that is still traded through London. This is also the most frequently used process for forex trading. Surprising though, that even with America considered to be the Goliath in market capture, spot forex is still done through London. One must bear in mind that spot deals take place two business days later. Delivery date or value date is the term used for this deal. Parties who have sold or bought the currency take delivery on that particular date.

End of the business day in case of Spot FX is 21:59, in London time. Positions which remain open at this particular time are automatically rolled over to next business day. The next business day once again ends at 21:59 hours. Spot FX is one form of trade where the party usually does not wish to take delivery and a roll over instruction is mostly given in this type of transaction. That is the reason this special clause of time and roll over action is maintained in the spot forex.

Brokers of the day mention this in their policy and procedure and do so automatically without their client’s explicit request every time. tom.next is a term that is heard in this trade which stands for tomorrow and next day.

Unless the trader gives exclusive instruction to the broker regarding the currency required, the broker rolls over the position to the next day automatically. There are also accounts that are highly leveraged that also follow this roll over effect. This is necessary as most of such leveraged accounts do not have enough capital in them to cover the transaction amount.

The base line of understanding is that the currency that has a higher overnight interest rate will give gains to the trader if one rolls it over. One must keep this process in mind before going to a broker.

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