{"id":8055,"date":"2022-09-06T08:00:45","date_gmt":"2022-09-06T08:00:45","guid":{"rendered":"https:\/\/www.vtmarkets.com\/?p=8055"},"modified":"2025-06-18T03:08:49","modified_gmt":"2025-06-18T03:08:49","slug":"fx-spot-trading","status":"publish","type":"post","link":"https:\/\/www.vtmarkets.com\/kr\/learn-forex\/fx-spot-trading\/","title":{"rendered":"FX spot trading"},"content":{"rendered":"\n
Understanding spot trading<\/strong><\/h5>\n\n\n\n

Spot trading involves a real-time assessment of current prices in the foreign exchange market. When an individual makes a spot trade, the value of the currencies they are working with is based on these real-time price movements \u2014 i.e., the currency value at the exact moment a trade is made.<\/p>\n\n\n\n

As forex is a highly volatile and liquid market, these values can change quickly. Often, the value of two currencies in relation to one another will vary by the second, which is why careful reading of market movements is required for successful trading.<\/p>\n\n\n\n

Traders may decide to go long when they open a position in the forex<\/a> market. This means essentially buying a currency at the current spot price, expecting it to increase in value. The trader may decide to keep this position open for just a few minutes or seconds (known as scalping), for a few hours (known as day trading), or for longer, depending on their strategy. The opposite of going long is to go short, which means opening a selling position \u2014 traders choose this approach if they believe the currency value will fall in relation to the current spot price.<\/p>\n\n\n\n

The benefits of forex<\/a> spot trading include access to a highly liquid market, a relatively straightforward trading technique, and the opportunity to increase exposure via leverage. However, just because the strategy has its advantages, this does not mean results are guaranteed \u2014 traders still need to take steps to mitigate risk in the market.<\/p>\n\n\n\n

Spot trading and pips<\/strong><\/h5>\n\n\n\n

When individuals research and execute an FX spot trade, they need to be able to measure the movements in the market. This is where pips come into play. Pips in forex<\/a> are incremental movements of price \u2014 which can be in the upward or downward direction depending on current market forces.<\/p>\n\n\n\n

Generally, a pip is a movement at the fourth decimal place of the currency value \u2014 a minimal shift or up or down that is worth less than a single cent to traders. In some cases where the denomination of a currency is very small, a pip may represent a price movement at the second decimal place. <\/p>\n\n\n\n

While these pips are small, they are critical to understanding the forex market. Once a spot trade has been executed, pips are used to measure the subsequent movements of its value, which will tell the trader whether or not their trade has been successful. Traders need to remember that positions move up and down regularly, so they need to view the aggregate progress of the currency value to understand their trade better. <\/p>\n\n\n\n

For example, a day trader may see their position fall multiple times over the course of the trading day. Still, its overall value will increase as long as the upward movements outweigh the downward movements. Only scalper traders will need to focus on individual pip movements on a second-by-second basis.<\/p>\n\n\n\n

Spot trading and leverage<\/strong><\/h5>\n\n\n\n

As we’ve just seen, a spot transaction is based on the current price of a currency, represented in pips. While these pip movements are very small, traders can maximise the exposure they experience in the market through a process known as leverage. When they increase their exposure in this way, traders have the potential to receive a significant profit from their transactions. However, increased risk comes with increased exposure, and traders are in danger of severe losses when using leverage.<\/p>\n\n\n\n

Using leverage in forex<\/a> means borrowing capital to supplement the trader’s own capital. So, a trader may leverage a position at 10:1 \u2014 for every $1 they use to open the trade, they borrow a further $10. In this example, the trader can control a position worth 10x the value of an unleveraged position. In relation to spot trading, the transaction is still based on the current spot value, which is multiplied by the amount of leverage involved. The leveraged capital will need to be paid back at the end of the trade \u2014 this will be taken from the trader’s profits if the position is successful or paid back in another way if the position is unsuccessful.<\/p>\n\n\n\n

The difference between spot trading and forex derivatives<\/strong><\/h5>\n\n\n\n

When traders develop their forex strategy, they choose between several different derivatives. Spot trading is not a derivative \u2014 the value of a currency pair is based on the real-time pricing of the currencies involved. A derivative is a trading instrument derived<\/em> from underlying forex data. FX options and swaps are examples of derivatives.<\/p>\n\n\n\n

Take a look at the key differences between spot trading and derivatives.<\/p>\n\n\n\n