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A spot contract is one of the most common foreign exchange products used to sell one currency and buy another. Whether you are an individual purchasing property overseas or a business looking to close a deal or purchase goods, this is a product that you can use to facilitate the purchase or sale of currency for immediate settlement on the spot date.

Essentially a spot rate is the live market rate between two currencies, and would typically be settled within T+2, which means transaction date plus two working days, although with the speed of bank to bank payments being almost instantaneous these days, typically a spot contract would be settled the same day or next day.  What this means is that you are reliant on the current market rate at the time the transactions are due to take place.

When would you choose to utilise a spot contract?

A spot contract is useful when you need to make an immediate international payment either via your bank or a foreign exchange broker.  Once you have agreed to, and secured the exchange rate, you make payment in the currency that you sold, once received by your bank or foreign exchange broker, the currency you purchased will be sent to your nominated beneficiary bank account

What Are The Advantages And Disadvantages?

Just like all other financial products, there are advantages and disadvantages that come with them. Therefore, using a professional service such as a foreign exchange broker who provide tailored support, will enable you to determine whether to go ahead and use this product or opt to take a different approach.

Therefore, if you are in need of making an international payment quickly, spot contracts are often the preferred choice because it enables you to deliver the funds to the recipient efficiently.

However, you may want to consider leveraging your exposure with some of the other financial products as this will help to reduce the risks. The currency markets are extremely volatile and so, it can help to use expert advice to gain a clear understanding of the markets and the bigger picture.

You could decide to place an order for goods from an overseas company that requires payment in two months’ time. If you choose to use a spot contract to settle the invoice then you are exposing yourself to the risk of currency fluctuations and so that could mean the exchange rate at which you settle the spot contract could have changed by the time you come to book the transaction. This could mean that the price you pay is higher than it would have been. On the flip side, the markets could change in your favour but there is no way of knowing and so, you might want to consider other financial products, such as forward contracts or market orders, if you do not have to make a payment immediately.

The reality is that making business payments or personal payments have to be carried out at the right time. While there is no way of knowing when that might be, the best option is to call on experts who will be able to take care of the process, provide advice and ensure your money works hard for you.

 NewbridgeFX can help you to arrange a spot contract, and other applicable foreign exchange products, while also offering a fee free, fast, efficient and secure service. For further information on how NewbridgeFX can help please contact us

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