Spot trading is one of the common terminologies used in trading currencies. But what does it mean and how can you access the best rates for spot trading?
Below we take a closer look at spot trading and guide you through the process of achieving the best spot trading rates.
What is spot trading?
The official definition is:
A contract to buy or sell a specified amount of a currency pair at a given exchange rate for immediate delivery and payment.
How does spot trading apply for foreign exchange?
A foreign exchange spot transaction, also known as FX spot, is an agreement to buy one currency against selling another currency at an agreed price for settlement on the spot date.
A spot date in essence means 'on the spot' or immediately, but in practical terms you agree to the price now and the funds are payed out 2 or 3 days later. This is known as the spot settlement date.
It is the instant nature of a spot transaction that distinguishes it from a futures or forward contracts. These contracts are more focused on making or having the option to conduct a foreign exchange purchase at some time on the future.
Spot trading can therefore be summarised as a trade where you are quoted a foreign transfer rate, you accept it, pay for it and the transaction is completed.
How often does the spot rate change?
Exchange rates float freely against other currencies which means they are in constant fluctuation. This means rates are actually in a perpetual state of change, there is never a time when rates are fixed.
This makes it very hard for the company or person wishing to 'shop around' for the best spot rate. The reality is by the time you have compared a rate by calling different providers or looking at different websites, the exchange rate would have changed.
How does one access the best spot rate?
The world of foreign exchange is full of claims of 'access the best rates here' or 'best exchange rates' – the reality is no one can make such a claim. The speed of the market fluctuations coupled with many other factors, including the bank's position at the time of trade, will dictate the spot rate you can access.
What are the golden rules for securing a competitive spot rate?
Since our inception we have followed some very basic guidelines to provide our clients with the most competitive spot rates we can:
- We deal with more than one authorised dealer. The banks ultimately dictate the spot rate you are offered. By dealing with more than one bank we are able to ensure we are accessing the best rate for you.
- We watch the banks. By subscribing to Reuters we have access to vital market information that means we can see the exchange rates across a large section of the market – in other words we can see if the bank rates are competitive.
- We do not reward high spreads. The spread is the difference between what something is bought for and what it is then sold for. Our dealers are not rewarded for the size of the spread they achieve. This means their focus is purely on securing the trade at the best rate for you or your client, not on how much spread they can make.
- Transparency. All too often we hear confusing statements such as spot +2 but what does this actually mean? If you do not know the spot rate, the spot +2 is simply unimportant. By subscribing to Reuters we are able to screenshot the interbank rate proving the spread is indeed what you were quoted.
- Fixed spreads. Incompass have a maximum and minimum spread, depending on the size of the transfer and with most of our corporate clients we agree the spread for all trades. This means you negotiate only once and then enjoy peace of mind, knowing that your spot rate is fixed against the inter bank rate.
Rates are important but not everything
When you enlist our services to assist you with your spot trades, you will benefit from the experience and expert knowledge of our team.
You'll also benefit in the following ways:
- Superior service levels backed up with our ISO 9001 accreditation.
- Security of our systems once again backed up with ISO 27001 accreditation.
- Our relationship with accredited dealers such as Investec Private Bank.
- Being kept in touch with at every step of your transfer.
- Being part of a trusted client base that utilise Incompass for billions of rands of transfer a year.
Do better business with our spot trade solution.
- Market leading forex rates.
- No administration fees.
- ISO 9001 accredited service levels.
- ISO 27001 accredited security levels.
- 100% transparency on all money transfers.
- Tailored services to meet your money transfer needs.