The spot market

Convert Pounds to DollarsThe spot market for nearly a third of sales overall change. It can be divided into two levels:

* The interbank market where money is bought and sold for delivery and settlement in two days, banks acting as “wholesalers” or “market makers.”

* The retail market consists of private operators who deal via telephone or Internet intermediaries (brokers).


The foreign exchange market has no central exchange. All trades are OTC transactions, accepted and settled by counterparties known person to another. The Forex market is truly global and operates 24 hours per day, Monday to Friday. Daily trading begins in Wellington, New Zealand and follows the sun (among others) in Sydney, Tokyo, Hong Kong, Singapore, Bahrain, Frankfurt, Geneva, Zurich, Paris, London, New York, Chicago and Los Angeles before start again.


Currency pairs and exchange rate


Each exchange transaction is an exchange between a pair of currencies. Each currency is represented by a unique three-digit International Standardization Organization (ISO) code (for example GBP USD is the pound sterling and the U.S. dollar). Currency pairs are expressed in two ISO codes separated by a division symbol (convert pounds to dollars: GBP / USD), the first representative of the “base currency” and the other “secondary currency”.


The exchange rate is simply the price of one currency into another. For example GBP / USD = 1.5545 indicates that a unit of the pound sterling (the base currency) can be exchanged against U.S. dollar 1.5545 (the secondary currency). The base currency is the one you are buying or selling. This elementary point is often lost on beginners.


The exchange rates are usually written to four decimal places, with the exception of the Japanese yen is written to two decimal places. The rate of two (out of four) digit is known as the “great figure”, while the third and fourth decimal places as well as measuring the “points” or “pips”. For instance, GBP / USD = 1.5545 the “big figure” is 1.55, while 45 (that is to say the third and fourth decimal places) represents the points.