What is the Spot market?

The spot market is a type of market in which any kind of securities, commodities, raw materials or foreign currencies are sold in the form of spot transactions and delivered directly to the buyer.

The term also describes the current price of commodities and raw materials, such as gold or silver. It also indicates trading operations that are done on an immediate rather than deferred basis.

 

What are the characteristics of the SPOT market?

SPOT is a direct abbreviation for spot next, a term that defines a two-day period. It means that two parties transacting today at an agreed rate will settle by delivering the currency two days after the transaction date.

In practice, this applies to two business days. Thus, if the transaction was concluded on Monday then settlement will take place on Wednesday. Despite the fact that the time it takes for a transaction to settle is two days, the SPOT market is called an instant market. This is mainly due to the fact that the exchange rate is set for today with a physical settlement date in two business days.

Where can you meet spot prices?

If you have ever participated in the sale of silver or gold then you certainly know that each commodity has its own spot price. The British spot price of gold, for example, refers to the price at which gold can be purchased and immediately received at any time.

Spot rate also means the price of direct purchase of foreign currency. You can see it at any exchange office.

What are the highlights of the spots?

It is worth remembering that the spot market is known by the terms “physical market” or “money market”, because trading and exchange of goods takes place in a direct mode.

Among the most popular spot markets, we can certainly include the foreign exchange market, in which currencies immediately after a transaction pass into other hands, at the spot exchange rate.

It is worth remembering that spot markets, unlike futures markets, are settled based on forward prices with a so-called deferral.