What are spot and forward transactions or contracts?
A spot transaction is a contract involving two or more parties for the sale and purchase of a given asset at a given price for immediate payment and delivery. Even though, payment and delivery in spot transactions are immediate, it may take two to three days to finalize the transaction in an organized market. It is pertinent to note that while spot contracts may be traded on an exchange, almost ninety five percent of spot transactions take place outside the exchange or over the counter. A forward contract on the other hand is a tailor-made derivative contract involving two or more parties agreeing to purchase and sell a given underlying asset at a given price for delivery at an agreed date in the future. The contract is always designed to suit the taste of the buyer. Most forward contracts are over the counter contracts.
