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A spot FX transaction means agreeing to an FX rate to settle on a T+2 basis.

Though there are transactions that deliver/settle overnight/T+1. Why is spot, therefore, the standard benchmark trade, and not overnight? Are there statistics on volume?

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Because it takes time for things to process and settle in back office systems, i.e. record the trade, process the trade, pass information to relevant support teams, ensure that settlement takes place at the right time. Don't forget timezones are a complication also.

Maybe with straight through processing (STP) of the top tier digital systems in most banks nowadays it could be performed within a day, but this wasn't true for the majority of the last 50 years when standards evolved, and it certainly is not true for all counterparties still.

Volume data is available but I believe it is restricted access as generally accumulated between bank market makers (who own it). I have not seen it but I strongly suspect spot is far, far more voluminous than overnight.

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  • $\begingroup$ I like this answer. But I also wonder how much it this "spot is more voluminous than ON" is still due to the actual technical restrictions or whether it's predominantly legacy/habit now. $\endgroup$ – Phil-ZXX Jul 29 '18 at 11:31
  • $\begingroup$ Spot is more voluminous than forward because market makers hedging positions break forwards and spots into the spot component + interest rate component of an FX price and hedge these components separately. $\endgroup$ – rupweb Jul 29 '18 at 21:28

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