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Spot Rates Definition

What is a Spot Contact, Spot Deal and Spot Rate?

A spot deal is essentially a transaction that is booked, confirmed and settled immediately.

In more detail a spot deal is an agreement between a client and a foreign exchange broker to sell one currency and buy another currency at an agreed exchange rate, for settlement on the spot date.

A spot deal consists of agreeing an exchange rate after specifying a base currency and a variable currency. The base currency is the currency the client wishes to sell; it is located on the left side of any quote whereas the variable currency will be the currency the client wishes to buy and is located on the right side of any quote. Therefore GBP/USD would mean that the client is looking to sell GBP and buy USD.

A spot deal is an immediate transfer of funds and can be used for:

  • Buying a property overseas
  • Sending funds to friends or relatives
  • Emigrating
  • Paying off a loan or credit card
  • Sending savings back home
  • Paying for holiday accommodation
  • Large purchases such as a boat, car, plane
  • Overseas investments
  • Business payments – such as invoices for Importers/Exporters

The standard settlement timeframe for a Spot deal is T+2.  Transaction date plus 2 days for expected delivery.  It is one of the most common types of deals used to transfer money overseas immediately.

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