Episode 5 begins Part II: Spot FX with comprehensive coverage of how spot transactions actually work from trade agreement to final settlement. David Axtell draws on decades running treasury operations to explain the mechanics that underpin seven and a half trillion dollars of daily FX trading.

The episode explains why spot settlement takes two business days (T+2) rather than being immediate, covering historical context from the telex era through modern electronic systems. Value date calculations receive detailed treatment including business day rules, holiday adjustments in both currencies, and complications from Middle Eastern Friday-Saturday weekends versus Western Saturday-Sunday weekends.

David walks through the complete settlement flow: confirmation generation, payment instruction transmission to operations teams, movement through domestic payment systems (Fedwire for dollars, TARGET2 for euros, BOJ-NET for yen), and the critical timing around cut-off deadlines. The 1974 Herstatt Bank failure provides historical context for settlement risk—banks had paid Deutsche marks to Herstatt but never received promised dollars when German regulators closed the bank mid-settlement cycle.

CLS (Continuous Linked Settlement) solved this principal risk through payment-versus-payment mechanisms across eighteen major currencies, processing over six trillion dollars daily during a seven-to-noon Central European Time window when all relevant payment systems operate simultaneously. The episode concludes with market session analysis showing how liquidity varies across Asian (quiet), European (building), and London-New York overlap (peak) sessions, plus introduction to the learn.rondanini.com education platform.

The Trading Floor with David Axtell