- Most FX trading is undertaken electronically. Traders will be given access to screens where they can see the prices, the amount they are trading, and the value date for the transaction. Traders using electronic platforms will generally have accounts with several banks with whom they are able to trade. Traders can narrow the effective spread by dealing with the bank with the highest bid and the bank with the lowest offer.
- Some spot traders will use voice/telephone trading because they either don't have access to electronic trading platforms, or want to either obtain a better bid/offer than that quoted or want an amount above the limit for electronic trades.
- When traders are purchasing across the telephone, they will shout "mine" to the market maker if they are buying the base currency or "yours" if they are selling the base currency. The market maker will confirm with a "paid" if the trader is buying the base currency or a "given" if the trader is selling the base currency.
Managing Spot Positions
- A trader’s position is said to be “long” on the currency that has been bought, and “short” on the currency that has been sold.
- Traders generally have to keep within their daylight and revaluation limits. A daylight limit allows a trader to take any number of open trades in a base currency up to a preset amount. There will also be a revaluation limit which is the maximum loss a trader is allowed to sustain without having to square the position and book the loss.
- The effect of an FX spread is that immediately after a trade is made, traders will record a loss because to undo the trade would leave them with a lower balance than before.
- Traders must mark to market (revalue) their trades regularly. This is calculated by comparing the average rate to the current market price on the trading screen.
- Shading the price is a practice by which a market maker manipulates its bid and offer prices such that it attracts liquidity into the currency in which it wishes to hold a long position.
- A dealer who has an open position might decide to set a level where, if the market is moving against it, it is prepared to close its position and cut its losses. This is called a stop-loss order.