The trading that happens between a buyer and a seller directly is known as over-the-counter markets. Managing the liquidity is one of the benefits that exchanges gain from this. The risk involved is a possibility that one party not completing the trade is lowered due to this. In over-the-counter market, exchanges provide complete transparency to the traders and also follows the current market price. This is one side of the advantage of over-the-counter market. On the other hand, the common rules of an exchange market are necessarily not followed by over-the-counter markets. This allows buyers and sellers to create contracts that are nonstandard. It can also include the unpublished price of the products. This comes under spot trading as well since they are done on the spot.
Spot Trading In Detail
Selling and purchasing financial instruments, foreign currencies, and commodity which is to be delivered immediately is a known as spot trading. There is the physical delivery of currency, commodity or instrument in spot contracts.
One of the most common types of trading is Foreign Exchange spot contracts. These contracts are usually for delivery within two business days even though most other financial instruments settle the next business day. Electronic networks are used throughout the world for spot foreign exchange market trade like this. With over $5 trillion traded every day, this is one of the largest markets in the world. Because of its size interest rates and commodity markets a small.
Understanding Spot Forex
Spot forex market is another word for spot trading.With the exception of U.S. dollar vs the Canadian dollar that is settled the next business day itself, after the execution of the trade, most spot currency trades settle within two business days. If in case there are holidays that coincide with the settling day, in this case, the settlement days will be more than two calendar days after the execution of the trade. Especially during the holiday seasons like Christmas and Easter seasons. A valid business day in both currencies is considered for settlement date. There is a credit risk between the two parties since generally the money changes hands on the settlement date.
Commonly Traded Currencies
The euro versus the U.S. dollars are the most traded currency pairs. Next comes the U.S. dollar vs the Japanese yen pair. There are also cross currencies which are the pair of currencies that do not include U.S. dollars. Some of the common cross currency pairs are; euro vs the yen or euro vs the British pound.