What spot means for a business
A spot foreign exchange trade is an agreement to exchange one currency for another at a rate fixed today, with the two amounts changing hands on the standard settlement date for that currency pair. For most pairs that date is two business days after the trade, written T+2. USD/CAD is the main exception and settles one business day after the trade, written T+1.
For a business, spot is the plain, everyday conversion. A Canadian distributor pays a German supplier in euros. A software group funds its Polish studio in zloty. A Hong Kong trading company receives US dollars from a buyer and converts part of them to cover local costs. In each case the firm needs a known amount of one currency, it agrees a rate, and the money moves within days. There is no contract stretching months ahead and no right to walk away. Once a spot trade is booked, both sides are bound to settle it.
Keep the rate, the value date and the onward payment separate in your mind. Each is agreed and checked on its own.
Requesting a quote
A quote request needs four facts: the currency you are selling, the currency you are buying, the amount and the side on which the amount is fixed. That last point causes more confusion than any other. "Buy 100,000 euros" fixes the euro amount and leaves the dollar cost to be calculated. "Sell 100,000 dollars for euros" fixes the dollar amount and leaves the euro proceeds to be calculated. Both are valid instructions. They produce different numbers, so be exact.
Most firms fix the side that matches the underlying obligation, such as the exact euro amount on a supplier invoice.
Say when you want value. If you ask for spot, the dealer quotes for the standard date. If you need the currencies earlier, such as today or tomorrow, say so at the start, because the rate for an earlier date can differ slightly from the spot rate and same-day value depends on the time of day.
Once the dealer has the details, you receive a rate and the calculated counter amount. That quote is live only for a short period. Markets move continuously during trading hours, and a dealer cannot hold a price open for long without taking on risk. Expect the quote to be held for a brief window, measured in seconds on a platform or for the length of a short exchange on the phone. If it lapses, you ask again and receive a fresh rate, which may be better or worse.
Have your approval ready before you ask. A quote that sits waiting for a second signatory will expire. Many treasury teams get internal sign-off on the amount and currency first, then request the rate when the authorised person is at the desk.
How the rate is built
The rate you are quoted starts in the wholesale market, where banks and large liquidity providers trade with each other. That market always shows two prices: a bid, at which the market buys the base currency, and an offer, at which it sells. The midpoint between them is the mid-market rate. It is a reference point, and nobody trades at it as a matter of course.
Your provider takes the wholesale price available to it and adds a margin. The margin pays for the provider's costs: compliance staff, technology, banking relationships, payment fees and the people who pick up the phone when a wire goes astray. The final rate is the all-in price you pay. The gap between that rate and the mid-market rate at the moment of booking is the real cost of the conversion, separate from any fixed payment fee.
Several factors move that gap. Liquid pairs such as EUR/USD trade on narrow wholesale spreads. Less traded pairs, or pairs priced as a cross through a third currency, carry wider ones. Ticket size matters: very small trades cost relatively more to process, and very large ones may need to be worked with care. Time of day matters, because spreads widen when the main financial centres for a currency are shut. Volatility around data releases or political news widens spreads across the whole market.
For more detail, see our guides to how FX pricing works and the mid-market rate.
Booking the trade
Booking is the moment you accept the quoted rate. On a platform it is a click on the confirm button while the quote is live. On the phone it is a clear verbal acceptance, usually "done" or "agreed", which is recorded. Either way, the trade is binding from that point. You cannot cancel it because the market moves afterwards, in either direction.
At booking, the dealer should read back or display the main terms: the currency pair, which currency you bought and which you sold, both amounts, the rate and the value date. Check them there and then. Errors are cheap to fix in the first minute and expensive once the confirmation has gone out and funds have moved.
If you book a trade by mistake, tell the provider at once. The usual remedy is an opposite trade at the current rate, and any difference between the two rates is a real gain or loss.
Value dates and settlement timing
The value date is the day both currencies are due to be delivered. For spot it is set by convention: T+2 for most pairs and T+1 for USD/CAD. It must be a business day for both currencies. If a holiday falls in either, the value date moves to the next day that works for both.
Take a trade selling Canadian dollars for euros, booked on a Thursday. Spot would normally be the following Monday. If that Monday is a public holiday in Canada, the value date rolls to Tuesday. A treasurer who has promised a supplier payment for Monday needs to know that before booking, so the supplier can be told.
Cut-off times sit alongside value dates. Each currency has a latest time by which payments can be processed for same-day value through its clearing system. If your funds arrive after the relevant cut-off on the value date, the trade cannot settle that day. Our guide to FX value dates covers holidays, cut-offs and closed markets in detail.
Funding the trade
With most non-bank providers, you pay first. You send the currency you have sold to the provider's designated account, and once those funds are received and reconciled, the provider releases the currency you have bought. This sequence protects both sides, and it means your own funding is usually the step that decides when the trade completes.
Three details catch people out. The first is the reference. Each trade has a reference number, and it should appear on your incoming wire so the funds can be matched quickly. A payment that arrives with no reference, or with an invoice number from your own system, has to be investigated by hand. The second is the account. Providers hold separate receiving accounts for different currencies. Sending euros to a dollar account can trigger a conversion by the receiving bank at its own rate, which nobody wanted. The third is the paying entity. The funds must come from the client entity named on the trade, from an account in its own name. Third-party funding raises compliance questions and is generally refused.
Allow for your own bank's processing time. If your bank takes a day to release an outgoing wire after approval, build that into the timetable. The value date tells you when the provider expects to be paid. It says nothing about how long your bank needs to get the money out of the door.
Settlement and payment out
Settlement is the completion of the exchange: your sold currency received, your bought currency delivered. What happens to the bought currency next depends on your instructions. It can be wired to a third-party beneficiary such as a supplier, sent to your own account in another country, or split across several payees in a batch.
Set up and verify beneficiary details well before the trade. A payment needs the beneficiary's legal name, full address, account number or IBAN, and the bank's identifying code. Some destinations need extra fields, such as a purpose code or a local bank identifier. A missing field can leave a payment waiting in a queue after the currency risk has already been taken.
Once the wire is sent, ask for the network reference. It lets the beneficiary's bank trace the funds if they are slow to appear.
Confirmations and records
Every booked trade should be confirmed in writing. The confirmation is the formal record of what was agreed, and it should match exactly what you heard or saw at booking. It shows the trade date, value date, currency pair, amounts bought and sold, the rate, settlement instructions for both legs and a unique reference.
Read each confirmation on the day it arrives. If anything differs from what you agreed, raise it in writing straight away. Most disputes in this business are settled quickly when they are raised quickly. File confirmations with your payment records, because auditors and tax advisers will ask for them when they test foreign currency gains and losses. Our guide to reading a trade confirmation walks through each field.
Limits, approvals and controls
Spot FX is simple to execute, and that is exactly why internal controls matter. A single person able to request a quote, book a trade and release the outbound payment is both a fraud risk and an error risk. Well-run firms split those duties.
- Named dealers. Only specific people may book trades. The provider holds the list and should refuse instructions from anyone else.
- Dual authorisation. One person creates a trade or payment and a second approves it. On a platform this is enforced through user permissions.
- Amount thresholds. Trades above a set size need a more senior approver.
- Beneficiary controls. New payees, or changes to an existing payee's bank details, need separate verification, ideally a call to a known contact on a known number.
- Audit trail. Every quote, booking, approval and change is logged with a user name and a timestamp.
Providers set limits too, based on the volumes and countries you declared at onboarding. A trade far outside that pattern may prompt questions, which is normal for a registered money services business.
A worked example
The following example uses hypothetical rates for illustration only. It does not reflect any live price.
A Vancouver equipment importer owes a supplier in Spain EUR 150,000. The company holds Canadian dollars. On a Tuesday morning the finance manager logs in, checks that the supplier is already set up and approved as a beneficiary, and requests a quote to buy EUR 150,000 against CAD for spot value.
- The quoted rate is EUR/CAD 1.5000, meaning one euro costs 1.5000 Canadian dollars.
- The CAD cost is 150,000 multiplied by 1.5000, which is CAD 225,000.00.
- The finance manager books within the quote window. The screen shows a trade reference, a value date of Thursday and the CAD funding account details.
- A second approver signs off the trade and the linked payment to the Spanish supplier.
- A written confirmation arrives showing the same terms.
- The company wires CAD 225,000.00 on Tuesday afternoon, quoting the trade reference.
- On Thursday, with the CAD received and matched, EUR 150,000.00 is paid to the supplier's IBAN.
Now suppose the mid-market rate at the moment of booking was 1.4950. The difference of 0.0050 on EUR 150,000 is CAD 750. That is the conversion cost built into the rate, before any fixed wire fee. Knowing that figure lets the company compare providers fairly on later trades.
General information
This article is general information about how spot foreign exchange works for businesses. It is not investment advice and does not recommend any course of action for your circumstances. Rates, value dates and cut-off times vary by provider and currency pair, so confirm them before you book.
CCYFX provides spot foreign exchange for businesses, with EUR as its base currency. Our how it works page and the Foreign exchange service page explain the process.
