Spot is a type of financial transaction where the purchase and sale of an asset occur with its immediate delivery, usually within two business days. Unlike futures or options, where settlement and delivery of the asset occur in the future, spot market transactions involve immediate execution.
Key characteristics of spot transactions:
Immediate Execution: Assets bought or sold on the spot market are typically delivered and paid for within a very short time—on the transaction date (T) or within two days (T+2).
Spot Market: The spot market is a market where assets are traded with immediate delivery. This can include stock markets, foreign exchange markets (FOREX), commodity markets (e.g., oil, gold), and others.
Spot Price: The price of an asset on the spot market is known as the spot price. This is the current market price at which the asset can be bought or sold. The spot price continuously changes based on supply and demand.
Examples of spot markets:
Stock Market: Trading stocks with immediate delivery.
Foreign Exchange Market (FOREX): Exchanging one currency for another with immediate delivery.
Commodity Markets: Buying and selling oil, gold, metals, and other commodities with immediate delivery.
Swaps and Margin Trading: In the case of using leverage or margin trading (e.g., in FOREX), a transaction may involve swap operations, where the position is carried over to the next day, and the trader pays or receives an interest rate for the credit used for the transaction.
Examples of spot transactions:
Stock Purchase: If an investor buys stocks on an exchange and they are delivered to their account within two days, this is a spot transaction.
Currency Exchange: If a tourist exchanges dollars for euros at a bank at the current rate, this is also a spot transaction.
