The Spot Market deals in commodities or foreign exchange for immediate delivery, typically within two business days for currencies and within seven days for commodities. Compare with forward dealing futures contracts.
The Spot Market refers to a financial market where commodities, securities, or currencies are traded for immediate delivery. In foreign exchange markets, “immediate” usually means within two business days, whereas for commodities, it typically implies delivery within seven days. This contrasts with futures markets, where the delivery of the asset occurs at a later date.
The primary characteristic of the spot market is its immediate settlement feature. For instance, in the forex market, a EUR/USD spot trade initiated today will settle within two business days. Similarly, if a trader buys 100 barrels of crude oil on a commodity spot market, they will receive delivery within seven days.
In the context of the spot market, we often look at spot prices which can be represented as:
The spot market is crucial for determining the current price of an asset, which provides a benchmark for both spot and derivative markets. It offers liquidity and serves as a medium for hedging and speculation.