Last Updated on: 29th September 2020, 09:03 pm
The currency spot rate, or just spot rate, is the current exchange rate for any currency pair, for immediate settlement “on the spot”.
For most currencies, the spot rate is usually displayed to four decimal places. For certain currencies such as the Japanese yen, it is only displayed to two decimal places.
The exchange rate between two currencies is determined by a variety of factors that affect each currency’s value, including interest rates, national economic performance, and inflation.
It is also affected by the price that buyers of the currency are prepared to pay and, in turn, how much sellers are prepared to accept. These are called the bid and ask prices.
Trading in the highly liquid forex market, exchange rates tend to be unstable and prone to significant fluctuations.
That volatility might be profitable for speculative investors but can be detrimental for international companies with business lines in foreign currencies.
Negative changes in the exchange rate may erode their profit margins to the point of incurring losses.
Vincent Nyagaka is a Professional Trader, Analyst & Author. He has been actively engaged in market analysis for the past 7 years. He has a monthly readership of 100,000+ traders and has taught over 1,000 students since 2014. Vincent is also an experienced instructor and public speaker. Check out Vincent’s Professional Trading Course here.