Definitions
- What is Spot Rate?
- Why Traders prefer Currency Trading Forex based on Spot Rate?
- Advantages of Currency Trading Forex based on Spot Rate
What is Spot Rate?
The present exchange rate at which traders can buy or sell a particular financial instrument.
Spot rate is a price of one currency expressed by another currency fixed at the moment of transaction under the condition of exchange of these currencies by banks on the second day after the transaction was carried out.
Spot rate shows how high the national currency is valued abroad at the moment of transaction.
Both direct and indirect quotations can be applied to spot rates.
The abbreviation XXX/YYY is called cross rate if consideration of both direct and indirect quotations.
Why Traders prefer Currency Trading Forex based on Spot Rate?
Trading is a kind of business that involves buying and selling of company shares, commodities and currencies of other countries.
Currency trading is carried on with the help of foreign exchange.
Based on the foreign exchange market, otherwise known as forex or fx, people buy and sell foreign currencies and make money on the difference.
All these trading transactions are done based on the Currency trading forex spot rate, which is determined by the foreign exchanges.
This spot rate, which is always mentioned in pairs like USD/EUR, is used to exchange currencies from one another.
The most important point to note is that this is not a fixed rate.
This spot rate is constantly changing due to economic fluctuations, geopolitical events, industrial production, inflation and other global situations.
Advantages of Currency Trading Forex based on Spot Rate
- Forex is the largest market in the world trading in trillions daily.
- This market is open all the time 24 hours 7 days.
- Only a little amount as investment is needed to start forex trading.
- Mostly, there is no commissions involved in forex trading. Only ask or bid spreads are there to meet.
- Selection of currency pairs is less when compared to thousands of stocks.
However, as the profit ratio is enormous, so is the loss. Only people with the right mindset must indulge in forex trading.
Others, who are not suitable for this trade, will incur only heavy loss.
Moreover, people who has money that can be afforded to forego only must invest in forex trading.