What is the Spot Market?
The spot market is a securities or commodities market where goods, both perishable and non-perishable, are sold for cash and delivered immediately or within a short period of time. Contracts sold on a spot market are also effective immediately. The spot market is also known as the “cash market” or “physical market.” Purchases are settled in cash at the current prices set by the market, as opposed to the price at the time of delivery. An example of a spot market commodity that is regularly sold is crude oil; it is sold at the current prices, and physically delivered later. A commodity is a basic good which is interchangeable with other like-kind commodities. Some examples of commodities are grains, beef, oil, gold, silver, electricity, and natural gas. Technology has entered the market with commodities such as cell phone minutes and bandwidth. Commodities are standardized, and must meet specific standards to be sold on the spot market. The world spot market, or foreign currency trading
More specifically, the spot market is where currencies are bought and sold according to the current price. That price, determined by supply and demand, is a reflection of many things, including current interest rates, economic performance, sentiment towards ongoing political situations (both locally and internationally), as well as the perception of the future performance of one currency against another. When a deal is finalized, this is known as a “spot deal”. It is a bilateral transaction by which one party delivers an agreed-upon currency amount to the counter party and receives a specified amount of another currency at the agreed-upon exchange rate value. After a position is closed, the settlement is in cash. Although the spot market is commonly known as one that deals with transactions in the present (rather than the future), these trades actually take two days for settlement. What are the forwards and futures markets? Unlike the spot market, the forwards and futures markets do no
