The spot market is for financial instruments such as commodities and securities which are traded immediately or on the spot. In most spot markets, spot trades are always made with spot prices. Unlike the futures markets, orders made in the spot market are settled right then and there (instantly). Spots markets can be over-the-counter (OTC) markets, exchange or organised markets.
The spot market, also known as the physical market or the cash market because of the instant and immediate pace and movement of orders made as orders are made at current market price. Market prices are unlike forward prices, which cover prices at a later date.
The current price of a financial instrument is called the spot price. It’s the price that a particular instrument can be bought or sold for during a particular time and specified the place.
A spot trade is the purchase of financial instruments done on the spot or basically, immediately. These trades are always settled instantly and do not follow a set date in the future. That then means, any future trades that are about to end in the same month may also be considered stop trades.
Financial instruments like commodities and securities are bought and sold on exchanges that make, change or use the present price of the product/s.
Exchanges are very organised markets that bring dealers and brokers together who sell and buy options, currencies, futures, commodities, securities and other financial instruments.
Technically, these exchanges are divided according to objects sold and the type of trade. With objects sold, exchanges are divided according to the stock exchange, commodities exchange, and market foreign exchange. With each type of trade, exchanges are divided according to future exchange and the classical exchange. Future exchanges are for derivatives, while classical exchanges are for spot trades.
These are trades that take place directly between the buyer and seller.
On one side, these exchanges have the benefit of managing liquidity. The lowers the risk involved in the possibility of one party not completing the trade. Exchanges provide traders with transparency and follow the market price currently in place. On the other side, OTC markets don’t necessarily follow the common rules of an exchange market. That’s why sellers and buyers get to create contracts that’s nonstandard. Even the price involved may be unpublished. These are of course spot trades as well.
There are in fact three ways for corporations, institutions, and individuals to trade forex:
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