What is "Spot Market"

A place is a market for financial instruments such as commodities and securities that are traded immediately or on the spot. In spot markets, spot transactions are made at spot prices. Unlike the futures market, orders placed on the spot market are settled instantly. Spot markets can be organized by markets or exchanges or over-the-counter (OTC) markets.

ENTERTAINMENT "Spot Market"

The spot market is also referred to as the "physical market" or "cash market" because of the instantaneous and immediate pace and movement of orders placed on the order at the current price market. Market prices as opposed to forward prices, which cover prices later.

In some cases, crude oil, such as commodities in the futures market, is traded at spot prices. However, the physical delivery of the goods occurs later.

Spot Trade

Spot trading is the purchase of financial instruments on the spot or immediately. These transactions are resolved instantly and do not follow due date in future. Futures trades due to end in the current month can also be considered spot trades.

Point price

The current price of a financial instrument is called the spot price. This is the price that a particular instrument can be sold or bought within a certain time and place.

Organized markets or exchanges

Financial instruments, such as securities and commodities, are bought and sold on exchanges that use, produce, or change the current market price of a product.

Exchanges are highly organized markets that bring together dealers and brokers who buy and sell commodities, securities, currencies, futures, options, and other financial instruments.

Exchanges are divided by items sold and types of trade. When the objects are sold, the exchanges are divided into stock exchanges, commodity exchanges and exchange on the foreign market. By type of trade, exchanges are divided into classic exchange and future exchange. Trading on classic exchanges is for spot transactions, while future exchanges are for derivatives.

OTC market

OTC markets provide transactions that take place directly between the buyer and the seller.

On the one hand, exchanges have the advantage of liquidity management. This reduces the risks associated with the possibility that one party will not complete the trade. Exchanges provide transparency to traders and match the current market price. On the other hand, OTC markets do not necessarily follow general rules exchange market. Because of this, buyers and sellers can create contracts that may not be standard. Prices for products offered may also be unpublished. These transactions are also carried out on the spot.

It is customary to call transactions of the spot type or spot transactions for the purchase (sale) of various financial instruments with immediate settlement on them. Although the word "immediate" here should not be taken literally, in fact this period can be extended up to two business days.

A spot transaction is the opposite of forward (urgent) transactions, in which payment is made not upon the conclusion of the transaction, but only after a certain (specified by the contract) period.

Spot transactions can be concluded in all types of financial markets:

1. On the FOREX currency market;
2. On the exchange market (stock, commodity and other exchanges);
3. On the over-the-counter market (currency, stock, commodity).

Often spot transactions are also called cash or cash transactions. These include all transactions, the settlements for which take no more than two banking days, namely:

1. Transactions of the TOD type (from the English word today, in translation meaning - today). Payment for them occurs directly on the day of conclusion (T + 0);
2. Transactions like TOM (tomorrow - tomorrow). Payment on them is made the next day after the conclusion (T + 1);
3. Transactions like SPT (from the English word spot - place, point). Payment on them occurs on the second banking day after the conclusion (T + 2).

TOD, TOM and SPT contracts, despite the fact that they are all spot contracts, have different prices. The closer the settlement date, the lower the price and vice versa. So the smallest price of them is a TOD deal, then comes TOM and the highest price for an SPT deal.

In fact, the difference in prices is quite insignificant and is determined by the size of the key rate divided by the number of days in a year. Thus, for TOD transactions, settlements are carried out at the cash price (spot price), for TOM transactions, the price is determined as the sum of the cash price (on the day of conclusion) and the key rate for one day, for SPT transactions, the price is calculated as the sum of the cash price and the key rate for two day.

The cash price, also called the spot price, reflects the value of a real commodity (financial instrument) at the present time, in a specific place, provided that it is delivered here and now.

Examples of spot trades

By purchasing shares, for example, on the Moscow Exchange, you actually enter into an SPT (T + 2) spot transaction, since the shares become yours within 2 banking days from the date of the transaction. It is considered that this time is required in order to register you in the register of shareholders and in the depositary as the new owner of the purchased shares.

Or, suppose your company plans to purchase $2,000,000 worth of foreign goods. To do this, you first enter into a spot deal on the foreign exchange market in order to purchase these same two million US dollars. Moreover, as mentioned above, the most profitable will be a purchase under a TOD-type transaction (when making settlements on the same day). Having concluded such a deal, you will become the proud owner of two American millions right on the day of its execution.

Well, if you suddenly need to sell those same $ 2,000,000 for rubles, then the SPT transaction will be the most profitable (the price for it is the most expensive of all spot transactions). However, due to the low liquidity of SPT transactions, they are often replaced by TOM transactions.

The spot market is an economic platform where any assets (currency units, securities, raw materials) are bought and sold exclusively for cash, subject to the condition of prompt provision. All financial markets, despite their features, can be divided into two main varieties: urgent and spot market. The characteristics of the first one can already be guessed from its name: it implies the completion of transactions agreed upon by the two parties within a certain compromise period.

The second type of trading platform - the spot market - is also called cash in everyday life. Its main specificity is that the transaction is agreed on the basis of the last actual value of the asset, which was fixed at the time of determining the contractual terms. However, the value that is likely to be incurred in the future when the asset is provided, and its possible changes are not taken into account.
Knowing all the nuances of the spot market is essential for any trader, because the vast majority currency transactions proceeds according to this principle. In fact, Forex trading is spot sales in its purest form, because the currency is traded there based on the described mechanism.

The spot market and its specifics

The spot market is primarily characterized by the following features:

1. A spot contract and confirmation of a purchase or sale is concluded and paid within 2 business days of the week;
2. The formation of the value of an asset is directly related to the ratio of supply and demand for it;
3. The level of volatility significantly exceeds the indicators of the derivatives market;
4. Interest rate on the price of assets is not provided;
5. Quotes exchange rate fixed and unified;
6. Many transactions are made using modern automated computer systems.

Similarities Between Spot Market and Derivatives Market

Both the first and second options have a number of common properties, among which, first of all, it is worth highlighting the basing on fundamental economic fundamentals. Both markets are guided by the same concepts of price formation and competition rules. Also in the legislative plane, they are regulated by the same regulatory legal acts.
Both the derivatives and spot markets have a similar infrastructure base, use the same technological approaches and electronic global systems. However, a number of organizational similarities do not make them completely identical, which is the reason for the totality of their fundamental differences in trading.

Differences between the derivatives market and the spot market

The derivatives market is characterized by the fact that not any assets operate on it, but the ownership of them and the totality of obligations between partners. At the same time, very often in the course of drawing up a futures contract, not full ownership of the asset occurs, but only the right to own it at the end of the period specified in the contract.
The spot market provides for the operation of only real assets, which are immediately provided for use. At the same time, traders on the derivatives market have the opportunity to use both futures contracts and options or other financial instruments.
If on the spot market all settlements are carried out instantly and in full, then on the urgent market they (as well as the provision of an asset) can be postponed for a certain time period. Quite often, for financial security, the mechanism of "guarantee security" is used when drawing up contracts. Skillful traders are able to qualitatively combine the advantages of both markets and receive maximum privileges from this. The main thing is to learn how to select immediate or delayed trading operations in a timely manner.

spot market - English Spot Market, is a market valuable papers, a foreign exchange market or a commodity market in which both perishable and non-perishable goods are sold and bought for cash, either for immediate delivery or within a short period of time (usually no later than the second business day after the conclusion of the transaction). The spot market is also known as the "cash market" ( English Cash Market) or "physical market" ( English physical market). The parties make settlements at the market price at the time of the transaction, and not at the market price that will be at the time of delivery. An example of a commodity that trades regularly in the spot market is oil, which is sold at current prices and physically delivered later.

In order for a commodity or raw material to be traded on the spot market without problems, it must be homogeneous, that is, different batches must be interchangeable. Some examples of raw materials are grain, beef, oil, gold, silver, electricity, natural gas, and the like. Raw materials and commodities must be standardized and meet certain standards in order to be eligible for trading on the spot market.

The largest spot market in the world is the international foreign exchange market (Forex). English Forex). It carries out the simultaneous exchange of one national currency to another, when an investor makes a deal on a certain currency pair. For example, EUR/USD is the most popular currency pair traded on the Forex market. If an investor expects the Euro (EUR) to strengthen against the US dollar (USD), he will buy. If he expects the euro to weaken, then sell. However, the main advantage of the Forex currency market is the very high liquidity, that is, the investor can enter and exit the market whenever he wants.

The spot market differs from the futures market in that the price in the futures market depends on the cost of storing goods and future price movements. In the spot market, prices depend solely on current supply and demand, which makes them more volatile.

Another factor that affects prices in the spot market is the physical properties of goods, in terms of whether they are perishable or not. Non-perishable goods such as gold or silver will trade at a price that reflects future price movements. Prices for perishable goods such as grain or fruit will depend on supply and demand. For example, tomatoes purchased in July will reflect the current market surplus and will be less expensive than in January, when demand exceeding supply drives up prices. That is, an investor cannot buy January-delivery tomatoes at July prices, making them an ideal example of a commodity traded on the spot market.

Any market, whether stock, commodity or currency, can be divided into spot and futures. Accordingly, the spot price operates on the first one, and the price on futures contracts on the second one. What is the difference between them? How does the spot and futures market work? How do these prices relate to the Forex market?

Spot price in the market - what is it?

The spot market is the market in which transactions are carried out at the current time without any prior agreements. In this case, the delivery of the purchased goods is carried out within a maximum of 2 banking days. The spot price is the value of an asset that was established at the time of the conclusion of the current transaction. In other words, the buyer transfers money to the seller, the latter delivers the goods (in the foreign exchange market this will be the currency) within two days.

There are several types of spot prices. They are classified depending on the moment of fulfillment of delivery obligations. The price of TOD (derived from the word Today, that is, today) assumes that the exchange "Money-commodity" will take place today. If the delivery is expected tomorrow, then the market price is TOM from the word Tomorrow. The Spot price indicates delivery no later than two banking days after the conclusion of the contract.
The spot market is an immediate cash exchange market. Demand is met by supply, the seller meets the buyer, and the goods pass from one owner to another.

Spot and Forex - what do they have in common?

Instruments that are traded at spot prices can be financial assets such as stocks, bonds, commodities or currencies, that is, what is usually traded on real exchanges. In order to profit from fluctuations in the prices of certain commodities, contracts for difference or CFDs have been introduced, which actively offer Russian brokers in their range of services. What are they?

In fact, CFDs are the only spot market instrument that is used in the Forex market. The price of the contract changes in the same way as the price of the underlying asset. For example, if the price of wheat on the exchange rose to a certain level, the price of a contract for difference rose to the same level.

CFDs were artificially introduced to the market precisely so that clients of brokerage companies could benefit from speculation in stocks, bonds, and commodities. Brokerage companies, participants in the Forex market, do not have the right to provide traders with the opportunity to directly trade in shares and other stock instruments. CFDs made it possible to circumvent this nuance and were created specifically for stock speculators. CFDs are what the OTC forex market and the spot market have in common. Transactions under contracts for difference are concluded on the principle of "here and now", and their implementation takes place at the spot price.

Trading contracts for difference is carried out in the MetaTrader 4 trading terminal or any other that is provided by the broker. The list with available assets for trading is indicated in the general list. For example, in a company Forex4You, it looks like this.

The tool code is listed after the hash. If you move the cursor closer, you will see the full name of the symbol. In the example above, you can see the Apple stock chart. Any client of Forex4You can earn on fluctuations in its exchange rate without the actual purchase with the transfer of ownership and other procedures associated with this. Of course, Forex market traders can also not count on dividends, but here they were not relied upon initially.

You can buy or sell a contract for difference at the spot price at the time when the underlying asset is traded on the exchange. AT this example Apple stocks are available for opening trades from 15.30 to 20.30 hours on the time of the broker's trading platform.

Derivatives Market Features

On the derivatives market, transactions are concluded with a delay in time of up to a year. The buyer and the seller agree on the delivery now, and it occurs after a certain time on the appointed date. Futures and options are traded on the futures market. That is, not by the financial assets themselves, but by their derivatives - the rights and obligations to buy or sell any instrument.

So, if you purchase a futures contract for the euro-dollar currency, you have an obligation to purchase the asset at the expiration date. This is the main difference between the spot price (current) and the prices for futures contracts. It is not possible to trade options and futures on the spot market as the trade cannot be executed in such a short period.

With options, you have the right to buy or sell an asset in the future. It should be noted that you may not exercise this right if at that time the price does not satisfy you. The premium you pay to the seller for the contract will not be returned to you. She is the very price for the opportunity to buy financial asset at a fixed price today in the future.

In the derivatives market, options and futures are mainly purchased by manufacturers, importers or exporters, large hedge funds to insure currency risks. Also, derivative financial instruments are used by some traders to hedge risks. To do this, they buy one asset at the spot price and buy an option to sell the same asset on the futures market. The spot trade closes at the same time as the option expires.

If a transaction on the spot market brought the expected positive results, and by the time the option expires, the right to sell the currency at the stated price in the past will bring the trader a loss, then he simply will not use it. In this case, the trader will earn, of course, less, since he will pay a premium to the seller for buying the option.

Basically, the concept of spot prices is inherent in the stock, commodity and foreign exchange market. In the narrow circles of traders, the Forex market is also called the spot market, since transactions are carried out instantly. If the broker works on ECN technology, the scheme of work is very similar to the functioning of the spot market. However, do not forget that the Forex market is still an over-the-counter market.

Remember that the profitability of trading is very dependent on