What is a Spot Trade?
How Does a Spot Trade Work?
Also called cash trades, spot trades occur in the spot market and are characterized by the immediate or near-immediate delivery of the commodity in question. Foreign currency, stocks, and commodities are typically transacted through spot trades.
For example, 10 shares of stock XYZ on a $100 spot trade would be delivered upon the cash payment of $100. Spot trades are the opposite of futures contracts, whereby two counterparties agree to transact some asset or commodity at a specific price and date in the future.
Commodities are also frequently bought and sold on the spot market. For example, crude oil is sold for a certain price per barrel on the spot market. The oil is then delivered over time at the price that it was purchased.
Why Does a Spot Trade Matter?
With the advent of internet-based trading systems and electronic money transfers, spot trading has become more prevalent over the past decade.
The currency market is the largest spot market in the world -- to learn more about trading foreign currency (known as FOREX), check out The Basics of Trading FOREX.