Differences between the forward market and spot market

Posted on 2023-04-25

The main difference between the forward market and the spot market is the timing of the execution of the trade.

In the spot market, currencies are traded for immediate delivery or within a short period of time, typically two business days. The price at which the transaction is executed is called the spot price.=

On the other hand, in the forward market, two parties agree to buy or sell a specific amount of currency at a predetermined price on a future date, typically ranging from a few days to several years in advance. The price at which the transaction is agreed upon is called the forward price.

Another key difference is that the spot market is highly liquid and accessible to retail traders, while the forward market is typically used by corporations and institutional investors to hedge against currency risk. Additionally, the forward market is an over-the-counter (OTC) market, which means that the trades are not executed on a centralized exchange but instead between two parties directly or through a broker.

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