A spot contract is a binding obligation to buy or sell a certain amount of foreign currency at the current market rate, for settlement in two business days' time. To enter into a spot deal you advise us of the amount, the two currencies involved and which currency you would like to buy or sell.

Purpose

Companies involved in international trade may be required to make payments, or to receive payments, in a foreign currency. A spot contract allows a company to buy or sell foreign currency on the day it chooses to deal.

Settlement

A spot deal will settle (in other words, the physical exchange of currencies) two working days after the deal is struck. The difference between the deal and settlement date reflects both the need to arrange the transfer of funds and, the time difference between the currency centres involved.

Summary

Forecasting exchange rates is very difficult. For a company to use only the spot market for its foreign currency requirements may be a high risk strategy because exchange rates could move significantly in a short period of time. For example, if you placed an order for raw materials from Germany for payment in three months' time, and use the spot market to meet the invoice when it falls due, your company could lose significantly if rates move against you.

Key facts

Minimum deal size: No minimum
Maximum deal size: No maximum
Currency pairs: Any currency pair