Spot foreign exchange transactions: Also known as spot transactions or spot transactions, it refers to a type of transaction in which both parties to the transaction go through the delivery procedures on the same day or within two trading days after a foreign exchange transaction is completed.

Basic trading methods: Spot foreign exchange transactions are the most commonly used trading methods in the foreign exchange market, and spot foreign exchange transactions account for most of the total foreign exchange transactions. The main reason is that spot foreign exchange transactions can not only meet the buyer's temporary payment needs, but also help buyers and sellers adjust the currency ratio of their foreign exchange positions to avoid foreign exchange rate risks. By conducting spot foreign exchange transactions in the opposite direction to the existing open positions (the part of assets or liabilities exposed to foreign exchange risks due to the difference between foreign exchange assets and liabilities), the company can eliminate exchange rate fluctuations within two days. The loss that comes.

Since spot foreign exchange transactions only fix the exchange rate for delivery on the third day in advance, its hedging effect is very limited.

It is a foreign exchange transaction in which two different currencies are exchanged at an exchange rate agreed by both parties and cleared after one to two business days.

Ways of Spot Foreign Exchange Trading

Foreign exchange trading in a forward way


Favorable exchange is a method of remittance, which refers to a payment method in which the remitter entrusts the bank to use a certain credit instrument (such as a money order) to pay the money to the beneficiary through its foreign branch or agent bank.

The process is that the bank receives domestic currency at home and pays foreign exchange abroad. Because its exchange direction is consistent with the flow of funds, it is called Shunhui. Under the forward exchange method, a customer purchases a draft from a foreign exchange bank in their domestic currency, which is equivalent to selling foreign exchange by the bank.

The parties involved

① The remitter is usually the debtor or payer;

②Payee refers to the creditor or beneficiary,

③The remitting bank is the bank entrusted by the remitter to remit money to the beneficiary;

④The settlement bank is a bank that is entrusted by the remittance bank to receive the remittance from the remittance bank and settle the payment to the beneficiary. It is also called the remittance bank.

The relationship between the remitting bank and the dissolving bank is an agency relationship. After the bank receives the local currency and sells foreign exchange, it will notify the creditor or the branch or its agent bank in the country where the beneficiary is located by wire transfer, mail transfer and draft transfer according to the customer’s requirements, and transfer a certain amount of money in its foreign currency deposit account at the exchange rate of the day. The amount of foreign exchange paid to the payee. In this way, the foreign exchange bank increased the domestic currency paid by the customer on its own account, while deposits in foreign currency accounts abroad decreased the corresponding amount of foreign currency.

Specific forms

According to different delivery methods, spot foreign exchange transactions can be divided into three types.

The wire transfer method is referred to as Telegraphic Transfer (T/T). Bank-selling wire transfer is a remittance method in which the remitter’s application directly informs the foreign remittance bank by telegram or telex, and entrusts it to pay a certain amount to the beneficiary. The settlement method of wire transfer is to notify the bank (or entrusting bank) of the foreign exchange buyer and seller to receive and pay the transaction amount by telegram or telex. The proof of wire transfer is the telegram or wire transfer power of attorney from the remittance bank or transaction center.

The settlement method of bill exchange, referred to as Standard Exchange (Demand DRAFT, D/D). Bank-sold bills refer to the remittance bank, at the request of the remitter, issue a bill of exchange with the inbound bank as the payer, and send it to the beneficiary by the remitter or bring it in person, and withdraw the money from the paying bank on the basis of the bill A way of remittance. Draft delivery refers to the payment and collection of accounts through the issuance of drafts, promissory notes, and checks. These bills are the proof of the bill of exchange.

Xinhui delivery method, referred to as Xinhui. Bank-sold mail is a remittance method in which the remittance bank directly informs the foreign remittance bank to entrust it to pay a certain amount to the beneficiary by a letter upon the remittance's application. Mail delivery means to notify both the foreign exchange buyer and seller of the account-opening bank or entrusting bank to collect and pay the transaction amount by letter. The certificate of the letter transfer is the letter of attorney issued by the remittance bank or transaction center.

Benefit Analysis

The costs and benefits of the above three remittance methods are different. In the process of remittance receipt and payment, there is a time difference between the domestic currency received and the foreign currency paid due to the different remittance methods, which determines the different exchange rates of different remittance methods, and the level of the exchange rate depends on the length of the time difference. The remittance time is long, the bank can use the funds for more time, the benefits will be large, but the cost will be smaller, so the bank quotes are also lower, on the contrary, if the time is short, the bank can use the funds for a short time. It is small, but the cost will become larger, which is why the bank quotes higher. Generally speaking, the wire transfer takes the shortest time (1~2 days), and the bank cannot use the funds, so the wire transfer exchange rate is higher. Mail transfers and draft transfers are mainly mailed and have a long delivery time. Banks have the opportunity to use this part of the remittance to make a profit. The exchange rate is lower than that of wire transfers. In fact, the difference between this is equivalent to the interest income during the mailing period. At this stage, the exchange rate is generally calculated on the basis of the wire transfer rate, which has become the basic exchange rate for spot transactions. With the widespread use of electronic computers and the increasing computerization of international communications, the postal period has been greatly shortened, so the difference between several forms of remittances is gradually shrinking.

Reverse foreign exchange trading

Defining reverse remittance is a collection method, which refers to a payment method in which the payee (creditor) issues a bill, and the bank entrusts its foreign branch or correspondent bank to collect the money listed on the bill from the payer. Since the flow of funds in this way is opposite to the transfer direction of credit instruments, it is called "adverse exchange."

Nature For foreign exchange banks, under the reverse exchange method, a customer sells a draft to the bank, which means that the bank pays the local currency and buys foreign exchange. After the foreign exchange bank accepts the collection entrustment of the beneficiary, it shall notify its foreign branch or correspondent bank to collect a certain amount of foreign currency from the payer at the exchange rate of the day and include it in the foreign exchange account property opened by the foreign bank. As a result, the bank's domestic currency deposit account balance decreased, while its foreign currency deposit account increased the corresponding foreign currency amount.

Related trading terms

Spot foreign exchange trading is the most common form of trading in the foreign exchange market. Its trading volume ranks first among all types of foreign exchange transactions. To this end, several concepts related to it must be clear.

Delivery refers to the act of "clearing both money and goods" after the transaction is concluded. The delivery day is the day of the transaction, which is called delivery on the same day; the delivery day is the first business day after the transaction, and the next day or tomorrow is called delivery, and the delivery day is the second after the transaction. The business day is called immediate delivery or immediate delivery.

Business day refers to the date when the banks of the two clearing countries are open for business. If a country encounters a holiday, the delivery date will be postponed according to the number of days in the holiday.

Trader refers to the manager in the foreign exchange market. Its responsibility is to gather the orders of enterprises, companies or private customers to buy and sell foreign exchange every day, and register these orders successively sent to the bank in writing or by telephone according to various foreign exchanges, and then decide to buy or sell according to the position and price. The banks quickly found the target and made a deal. Among foreign exchange traders, mysterious technical language (jargon) is often used, and they must be decisive within a few seconds, and the transaction is highly technical. For example, if a customer asks a bank for a price, the bank trader must consider the counterparty's creditworthiness, the currency and quantity bought or sold, the bank's own foreign exchange position, and market exchange rate trends, etc., before deciding on the quotation immediately.

Quotation refers to the exchange rate quoted by the foreign exchange bank in the transaction to buy or sell foreign exchange. Generally, the "dual-file" quotation method is adopted, that is, the foreign exchange bank quotes both the buying price and the selling price in the transaction. For example, US$1=HK$7.7516~7.7526, the former is the buying price and the latter is the selling price. The difference between the buying and selling prices of the bank is the income of the foreign exchange bank buying and selling foreign exchange, generally l‰~5‰. In actual operation, foreign exchange traders do not declare the full price, only the last two digits after the decimal point of the exchange rate. As in the above example, if the exchange rate at that time was US$1=HK$7.7516~7,7526, the Hong Kong bank would only report: 16~26 or 16/26 when inquired. This is because the change of foreign exchange rate generally does not exceed the last two digits within a day, and there is no need to quote the full price. This is also the habit of banks. If the exchange rate rises and falls sharply in one day, breaking the convention is another matter.

Basic point, referred to as point, refers to the basic unit of exchange rate. In general, a basic point is one ten-thousandth of a currency unit, that is, the fourth unit after the decimal point of the exchange rate (0, 0001). The basic points of a very small number of currencies are somewhat different due to their large denominations. For example, the price of the yen mainly changes in two digits after the decimal point, so its basic point is 0.01 unit currency.