Spot Market

What is a Spot Market?

A spot market is a marketplace where financial instruments such as stocks, commodities, or currencies are bought and sold for immediate delivery. In this market, the transactions are settled "on the spot," meaning the buyer pays for and receives the asset immediately or within a short period, typically two business days (T+2).

Key Features of Spot Markets

Immediate Delivery: In the spot market, assets are bought and paid for immediately, unlike futures markets where delivery happens at a later date and price.

Spot Price: The current market price of an asset which is also important for setting prices in derivative markets.

Types of Assets in Spot Markets

Commodities: These are products like crude oil, metals, and agricultural for food and other commodities.

Securities: It refers to different stocks and bonds that are traded on vast exchanges like the New York Stock Exchange.

Foreign Exchange: The forex exchanges, which are among the best spot markets, have daily trading tools worth more than $6 trillion.

Advantages of Spot Markets

Liquidity: Besides, the spot markets are highly liquid, that allows for immediate transactions without a substantial price change.

Transparency: The prices are based on the real supply and demand, thus giving a transparent and accurate market condition.

Disadvantages of Spot Markets

Price Volatility: Overnight prices may sharply shift caused by unforeseen global events or financial statements.