What are spot and forward markets?
A spot market is a cash or physical market where transactions in commodities for immediate payment and delivery are carried out. It is a market that does not provide any opportunity for risk containment as it relates to quality and price dispute. This market exists for commodities such as agricultural and solid mineral products, stocks, energy and currencies. While Nigerian Stock Exchange is a spot market for equity and debt instruments, the Central Bank and Commercial Banks are spot markets for foreign currencies. A forward market on the other hand is a physical market to the extent that most transactions conducted in the market end up in physical delivery. It is also a derivative market because it is only the contracts derived from the future value of the underlying assets that are traded and not the physical commodities.
