A spot foreign exchange transaction, also known as spot FX, is an agreement between two parties to buy one currency against selling another currency at an agreed price for settlement on the spot date. The exchange rate at which the transaction is done is called the spot exchange rate. As of 2010, the average daily turnover of global spot FX transactions reached nearly 1.5 trillion USD, counting 37.4% of all foreign exchange transactions. Spot FX transactions increased by 38% to 2.0 trillion USD from April 2010 to April 2013.
The forex market is the worldwide largest market for international investment and trade on different currencies. Forex market participants can be ranged from central banks, commercial banks, investment banks, large corporate companies to individual investors and traders. The foreign currency market, unlike the stock market, is segmented into different access levels, having the interbank market at the top level (including the largest commercial and central banks in the world like Citi, Deutsche Bank, Barclays Investment Bank, UBS AG, HSBC, JP Morgan, or Goldman Sachs).
Just like the forex market, the interbank market is also decentralized, encompassing the biggest commercial and investment banks, with almost 40% of all transactions carried out by top-tier banks. This is followed by the next level, which comprises medium-sized and small banks, hedge funds (private investment partnerships open to a limited number of investors only), commercial companies, retail ECNs (Electronic Communication Networks), retail forex broker companies, and retail traders (individual traders and investors).
Despite of the market is predominantly an over-the-counter market, electronic trading has been seen at the forefront revolution over the last decade. The uniqueness of electronic trading lies on its transparency, efficiency and user friendly to all participants. With the advent of online trading platforms in 1996, the number of individual retail foreign exchange traders, who trade currencies and other financial instruments, has grown to a considerable segment of the forex market in terms of importance and size.