FX Spot Rate
Spot Rate Explained:
- What is a spot rate?
- What is a spot rate in FX?
- What impacts the FX spot rate?
- Example of a spot rate
- Spot rate vs forward rate
- What is T+1 settlement?
- MillTechFX spot rate
What is a spot rate?
The spot rate is the current price for trading financial assets for immediate delivery.
What is a spot rate in FX?
A spot rate in the FX market is an agreement to trade one currency for another at the current exchange rate for immediate delivery.
The standard delivery time for a currency spot transaction is Trade date + 2 business days.
There is one major exception to this being the U.S. dollar versus the Canadian dollar, which settles on the next business day.
What impacts the FX spot rate?
Fluctuations in the spot rate are due to changes in currency exchange rates. This can be caused by various factors including:
- Inflation – An increase in import and export costs leads to a decrease in demand for a currency, normally causing the currency to drop in value.
- Central bank monetary policy – A central bank that tends to increase interest rates following strong economy growth will see its currency appreciate over time.
- Geopolitics – Countries with stable geopolitical will tend to attract more investors, typically increasing the value of a currency.
- Public debt – High levels of public debt can deter away investors, potentially causing a currency’s value to decrease.
Example of a spot rate
- An investor has sold an asset for £100,000. They would like to exchange this GBP to USD.
- They execute a spot trade with an exchange rate of 1.2708, equating to $127,080.
- The trade is settled two business days later.
Spot rate vs forward rate
A spot rate refers to the current exchange rate for a trade with immediate delivery, usually t+2 business days.
A forward rate is the exchange rate at which a trade that is executed today and settled at a specified future date, usually longer than 2 business days.
What is T+1 settlement?
T+1 refers to the settlement of a trade in one business day. This was implemented in May 2024 by North America to replace the current t+2 settlement. This is currently not applied in the foreign exchange market.
MillTechFX spot rate
MillTechFX provides corporates and institutions with a multi-bank marketplace, allowing them to compare live streamed rates from up to 15 tier one banks, facilitating best execution for FX spot, forwards, rolls and NDFs.
Related terms:
What is MillTechFX?
We provide access to a transparent marketplace for comparative FX execution from up to 15+ counterparty banks, while harnessing a unique and significant pricing efficiency for our clients and reducing their operational burden. In addition, MillTechFX provides clients with full transparency of execution via independent TCA reporting.
