Foreign Exchange: A Practical Guide to the FX Markets

CHAPTER 5

The Foreign Exchange Spot Market

THE SPOT MARKET

The foreign exchange markets revolve around spot (that, is the FX spot market).

Confusion—Right from the Start

When I first walked onto our bank’s trading floor in the United States (the floor on which FX transactions were carried out), I distinctly remember a large, rather animated man jump from his chair to his feet and yell out, seemingly to no one in particular, “I buy dollar yen!”—to which I naturally thought, “Well, . . . make up your mind.” This is but one example of a foreign exchange spot dealer communicating in their unique vernacular. This leads us, first and foremost, to consider the quoting conventions associated with foreign exchange—one of the most confusing things around!

We said that the foreign exchange markets revolve around the FX spot market. Let’s be more specific about this statement in two ways.

1. When we say “the foreign exchange markets” (an expression that appears in abbreviated form in the subtitle of this book), what do we mean? By identifying these as plural, we do not only mean to indicate the main geographic trading centers for the various time zones (more dispersed in AustralAsia: Wellington, New Zealand; Sydney, Australia; Singapore; Hong Kong; Tokyo and Osaka, Japan; more concentrated in Europe: London, Zurich, Frankfurt, Paris; and very concentrated in North America: Stamford, Connecticut, New York, and a couple of other locations), but also the markets for different FX products ...