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 1.2). The features of the fast-paced
spot market are high volatility and quick profits (as well 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 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. 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.
By the entering into a contract on the spot market a bank serving a trader tells the latter the quota
 an evaluation of the currency  traded against the  U.S. dollar or another currency. A  quota

consists of two figures (for example, USD/JPY = 133.27/133.32 or USD/JPY = 133.27/32 which
means the same). The first of these figures (the left part) is called the bid price (that is a price at
which the trader sells), the second (the right part) is called the ask - price (the price at which the
trader buys the currency). The difference between asks and bid is called the spread. The spread,
as any currency price alteration, is being measured in points (pips).
 
In terms of  volume, currencies around the world  are traded  mostly against the U.S.  dollar,
because the U.S. 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
foreign currencies are  quoted against other foreign currencies, such as euro against Japanese yen.
The spot market is characterized by high  liquidity and high volatility. Volatility is the degree to
which the price of currency tends to fluctuate within a certain period of time. For instance, in an
active global trading day (24 hours), the euro/dollar exchange rate may change its value 18,000
times "flying" 100-200 pips in a matter of seconds if the market gets wind of a significant event.