The Spot Contract is the most basic and popular foreign exchange product. It is an agreement to buy or sell one currency in exchange for another. You have 2 days to settle the contract, at a price based on the prevailing "spot exchange rate" the current value of one currency compared to another.
Although the spot market lets you buy or sell currency as you need it, spot exchange rate movements are highly unpredictable, even during a single trading day. Upon receipt of cleared funds currency is available for onward transmission.
A Forward Contract lets you buy or sell one currency against another, for settlement no later than on the day the contract expires. Unlike spot contracts, a forward contract eliminates the risk of fluctuating exchange rates by locking in a price today for a transaction that will take place in the future (up to a maximum of 2 years). You also have the flexibility to take delivery of your currency in an agreed time period before the expiry date
A 10% deposit is required to secure the contract and is payable within two working days with settlement due on the day the contract expires.
A more comprehensive explanation of a Forward Contract, together with an illustrated example, can be found here.
A Limit Order is an order to secure currency at a specific price that may not be currently available. This type of contract is particularly useful when the markets are moving in a positive direction for you. This is one of the two most common types of orders, the other being a Stop Loss Order. In basic terms, you direct your broker to trade a currency the moment an exchange rate reaches X.
Stop Loss Order
A Stop Loss Order is used when the market is moving in a negative direction for your currency. An order is placed on file with your broker to help ease the stress of adverse market movements.
A stop loss order instructs your broker to buy when the currency hits a certain point. The purpose of the stop loss is obvious – you want to prevent any further movement before the currency falls any further. Quite simply it is the same as a Limit Order, but operates in the opposite direction – ie you instruct your broker to trade a currency the moment it falls to Y thereby cutting your losses should it fall further.
Getting further advice
Clearly we are estate agents – not currency brokers! As with all periphery services, we have researched the very best in the business and are happy to either refer them to you, or to get them to contact you to arrange a no commitment consultation.