TAILIEUCHUNG - Forex On-Line Manual For Successful Trading Chapter 3

CHAPTER 3 Kinds Of Foreign Exchange Market. . Spot Market. Currency spot trading is the most popular foreign currency instrument around the world, making up 37 percent of the total activity. The fast-paced spot market is not for the fainthearted, as it features high volatility and quick profits (and losses). | CHAPTER 3 Kinds Of Foreign Exchange Market . Spot Market Currency spot trading is the most popular foreign currency instrument around the world making up 37 percent of the total activity See Figure . Figure market share of the foreign exchange instruments as of 1998 1- spot 2 - options 3 - futures 4 - forwards and swaps. The fast-paced spot market is not for the fainthearted as it features high volatility and quick profits and losses . A spot deal consists of a bilateral contract whereby a party delivers a specified amount of a given currency against receipt of a specified amount of another currency from a counterparty based on an agreed exchange rate within two business days of the deal date. The exception is the Canadian dollar in which the spot delivery is executed next business day. FOREX. On-line Manual For Successful Trading 23 The name spot does not mean that the currency exchange occurs the same business day the deal is executed. Currency transactions that require same-day delivery are called cash transactions. The two-day spot delivery for currencies was developed long before technological breakthroughs in information processing. This time period was necessary to check out all transactions details among counterparties. Although technologically feasible the contemporary markets did not find it necessary to reduce the time to make payments. Human errors still occur and they need to be fixed before delivery. When currency deliveries are made to the wrong party fines are imposed. In terms of volume currencies around the world are traded mostly against the . dollar because the . dollar is the currency of reference. The other major currencies are the euro followed by the Japanese yen the British pound and the Swiss franc. Other currencies with significant spot market shares are the Canadian dollar and the Australian dollar. In addition a significant share of trading takes place in the currencies crosses a non-dollar instrument whereby .

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