Understanding the FOREX Spot Rate: A Beginner's Guide

The FOREX spot rate is the exact exchange rate quoted in real time at the moment of a trade. It is different from the forward rate, which is a quote based on anticipated movement of the currency at a date in the future. Most traders use the spot rate when it comes to real time trading online.

Two-Day Rule

The FOREX spot rate calls for delivery within two days. However, traders of foreign currency often hold a position for longer than this. To skirt the requirement, they will typically reset, meaning their broker closes the position and opens it again later. This extends the life of the spot rate in the trade, but it cannot be traded until the broker has reopened the position.

Spot Rate for a Common Investor

For a common or novice investor, the spot rate on a currency will not likely be very applicable. Common investors are not often making online currency trades in real time. Instead, it is more likely the common investor will use a forward rate estimate. Spot rates are still valuable information for a common investor to track the performance of a currency over a trading day, though, if he or she is looking for potential investments in the coming days.