What is spot forex?
Also known as cash forex or retail forex, spot forex is where you use a retail forex broker like FOREX.com to trade in the over-the-counter markets.
We are literally going into the market, offering our best prices, and fulfilling your desired currency trade for you.
Three things you should know about spot forex
Spot forex is a leveraged trading contract
It is important to remember that you are not actually trading the currency itself. Rather you are trading a contract to deliver the currency.
And because it’s leveraged, you don’t have to put up the full deposit for the trade. But leverage is a double-edged sword that can either magnify your profits or your losses.
You are not going to receive the currency you are trading
When you buy GBP/JPY, you are not going to take delivery of any Japanese yen. Similarly, if you trade EUR/USD, you will not receive any US dollars. This is because you are buying one currency while simultaneously selling the other currency as part of the currency pair contract, hence no actual physical delivery is required.
When you close your trade, any profit or loss is realized in the currency of your trading account.
You can either earn or incur rollover payments
There is technically a delivery date for you to receive the currency, but it is always rolled over onto the next day.
When you hold a position open into the next trading day, you are either charged or credited with a rollover (also known as overnight financing). These debits or credits fluctuate daily and are different for buy and sell positions.
You can find the rollover for your market in the Financing Charges section of our platform, or view our rollover rates charges table.
More on rollover fees and swap rates
A rollover fee is calculated using a swap rate.
The swap rate is measured by the difference in interest rates between the two currencies. We source the swap rate from major financial institutions which base it on a variety of factors such as inflation and key technical indicators.
How to place a forex trade
A step-by-step guide on how to trade EUR/USD.
While researching the forex markets, you read that the European Central Bank has reported strong economic growth and will raise interest rates. You also notice that the US economy has not performed as well as expected recently.
This leads you to believe that the euro will appreciate against the dollar.
You decide to buy EUR/USD.
To place your trade:
- Log into the FOREX.com web platform
- Select the Browse Markets tab
- Choose EUR/USD
Already you can see the SELL and BUY buttons in the top right of the screen. Selecting either of these will open the deal ticket, enabling you to choose how much you want to trade.
But first, we will select Market 360. This will give you all the information about the market in one convenient place.
It will also give you easy access to details such as the financing charges, which we will come back to later.
To buy EUR/USD, select the green Buy button. This will open the deal ticket.
In the quantity section, enter the size of your trade in base currency units, effectively how many euros you want to buy.
You enter 10,000, also known as one mini-lot.
Remember, spot forex uses leverage and EUR/USD is traded at a leverage of 50:1 (or 2%). This means you don’t have to put up the full value of the trade. In this example, it will only require $58.82.
The $58.82 is known as your margin and is dynamically shown at the bottom of your deal ticket when you open an amount.
- In the quantity bar, enter 10,000
- Select Place Trade
Congratulations! You bought 10,000 EUR/USD at a rate of 1.17666
Your intuition proves correct. A day later the euro rises 10 pips to 1.17766.
What is a pip?
A pip is the smallest amount a forex pair can move. It is the fourth figure after the decimal point e.g. 1.17666
For example, if EUR/USD rose from 1.17666 to 1.17676, this would be an increase of 1 pip.
The fifth figure after the decimal point is a fractional pip. A fractional pip is just one tenth of a pip.
You decide it’s time to close your trade and take your profit.
- Log into the FOREX.com web platform
- Select the Default Workspace tab
- Choose Close in the Position window
This will launch the deal ticket.
As you can see, the deal ticket shows that if you close the trade at 1.17676, you will realize a profit of $11.
To close your trade, simply select Close Position.
However, no trader gets it right every time. The pair could’ve dropped 10 pips to 1.17566.
In this instance, you would have had a loss of $10.
Earlier, we talked about rollovers. Because you held the trade overnight, you incurred a small fee.
In the Financing Charges section, the rollover for your long EUR/USD position is listed as -0.52 USD.
Therefore, you were charged 52 cents for holding the trade overnight. This is just an example to view the current financing charge please login to the platform.
Where do I find the rollover fee for EUR/USD?
- Pick the market 'EUR/USD'
- Select the 'Market 360' tab
- Choose 'Financing Charges'
There's more to learn about forex in our Trading Academy