I’m sure many of you must have found yourselves in circumstances where all your efforts to control a certain spontaneous situation goes for a toss. You would have possibly done everything that it required to grab the opportunity without losing out on the momentum. But hey, call it your bad luck or blame it on the bad weather, you know that there’s no point playing the “blame game”. Your egoistic head already knows that you can’t control everything in the universe. Sometimes you simply have to let go.
Okay, now that was some philosophy to start with! Wondering if this is what we would be talking about? The good news is NO. This small talk was infused so you could relate Forex with everyday situations for an easy understanding of the subject.
While there are few things a man certainly has no control over, Forex has surprisingly thrown some leniency on this regard. We all know that forex markets is the most volatile markets in the world with volumes exceeding trillions of dollars of trade taking place on a daily basis. Even With such a volatile market, it is possible to set your parameters and gauge your risk before placing any trade. We will discuss these possibilities at length at this hour of time.
A Quick Overview Of FX SPOT
To put it in a layman’s words a SPOT trade involves buying and selling of a foreign currency or a commodity for an instant delivery between two parties. But there is just one twist, here the delivery of the underlying asset (be it the currency or a commodity such as gold, crude oil, etc that is being traded) are physically exchanged after the expiry of the settlement date. This essential means that SPOT trading contracts expire before the actual delivery of the underlying asset takes place.
Now, let’s get back to our small talks. Think of visiting a foreign exchange or bank to exchange one currency for another. What you are essentially doing here is buying one currency by selling another one “on the spot” at an agreed rate. This transaction has two parties- one is the banker and the other one is you! And what more you are buying one even before actually selling the other currency, which means buying and selling is happening simultaneously. SPOT transactions works on similar lines too. The only difference is SPOT trades are generally settled within 2 days. This is called the “settlement date”. But of course with an exception of USD/CAD which is settled within a day.
But since we are talking about “Forex” that is traded online completely guarded from the different trading hours, retail traders would NOT want an “actual”’ or the “physical delivery” of the currencies traded. They would usually hold it up to 2 days (at the max) and “rollover” to a new position. The second common scenario is that they would simply close the position with whatever they have earned or lost on the trade and start a new trade.
