What's With All the Forex Spots?

The Internet has opened the foreign exchange market or the forex to each and every one of us. For a budding trader, there's a bunch of trading terms to learn and the word "spot" seems to come up a lot. What's a spot doing in the forex anyway?

The forex trading lingo is pretty confusing and more often than not, several trading terms only mean one thing. Case in point, the spot price is also called the current market price and the spot market is also called the interbank market. Confusing, right? So, in an attempt to get a grip on this "spot" matter we'll get to the gist of this term and simplify its many attachments.

First of all, it's not like a "pip" which is short for "percentage in point". The "spot" is not short for anything. Standing alone, it generally comes from the phrase "on the spot" or at that moment or simply "currently".

Given that definition, we'll tackle more common forex trading terms that are affixed to the "spot". One of which is the forex spot market. Sounds like the stock market huh? Anyway, it's where currency is traded at current market prices. To get a clear picture of this term, it's best to establish the fact that there's also a forex futures market (current as opposed to future, get it?). And by the way, it's also referred to as the interbank market just because two banks usually trade with each other in this market.

Another commonly used term is the spot price. As previously expressed, it's also called the current market price. And it's also the current quote or the current bid/ask price. When you go online and see the forex quotes being shown on the screen, those values are the current market prices of currency pairs. Those are the amounts that the market is willing to sell and offer to buy, one (1) base currency for the counter currency, at that moment as it appears online.

One more commonly used term is the spot contract. Now, this is the product of the trade that's executed in the forex spot market. This is actually the agreement of the parties (the buyer and seller) to fulfill the currency transaction. The word "spot" now refers to the nature of the contract (in relation to current prices used in the trade) and it's also settled immediately.

In conclusion, all the forex "spots" that we see online is generally used to identify the affixed words as being encompassed by activities associated with current market prices - the market it's traded on, the market's sell and offer positions, as well as the product of such transactions. Ultimately, the forex spot market is where we buy and sell currency at spot prices on the spot. And that's all it comes down to.