Spot Market
Written by David
Updated over a week ago

The spot market is where financial instruments, such as commodities, currencies, crypto currencies, and securities, are traded for immediate delivery. Delivery is the exchange of cash for the financial instrument. A futures contract, on the other hand, is based on the delivery of the underlying asset at a future date. Exchanges and over-the-counter (OTC) markets may provide spot trading and/or futures trading.

In TruBit PRO our users can find an SPOT market to trade any kind of cryptocurrencies and currencies.

Key Takeaways

  • Cryptocurrencies and currencies trade for immediate delivery in the spot market.

  • Many assets quote a “spot price” and a “futures or forward price.”

  • All spot market transactions have an immediate settlement date.

  • Spot market transactions can take place on an exchange or over-the-counter (OTC).

  • Spot markets can be contrasted with derivatives markets that instead trade in forwards, futures, or options contracts.

How Spot Markets Work?

Spot markets are also referred to as “physical markets” or “cash markets” because trades are swapped for the asset effectively immediately. While the official transfer of funds between the buyer and seller may take time, both parties agree to the trade “right now.” A non-spot, or futures transaction, is agreeing to a price now, but delivery and transfer of funds will take place at a later date.

Futures trades in contracts that are about to expire are also sometimes called spot trades since the expiring contract means that the buyer and seller will be exchanging cash for the underlying asset immediately.

Spot Price

The current price of a financial instrument is called the spot price. It is the price at which an instrument can be sold or bought immediately. Buyers and sellers create the spot price by posting their buy and sell orders. In liquid markets, the spot price may change by the second, as orders get filled and new ones enter the marketplace.

Spot Market and Exchanges

Exchanges bring together dealers and traders who buy and sell cryptocurrencies, commodities, securities, futures, options, and other financial instruments. Based on all the orders provided by participants, the exchange provides the current price and volume available to traders with access to the exchange.

TruBit PRO is an example of an exchange where traders can buy and sell cryptocurrencies for immediate delivery. For that is its spot market.

Advantages and Disadvantages of Spot Markets

The spot price is the current quote for immediate purchase, payment, and delivery of a particular commodity. This means that it is incredibly important since prices in derivatives markets such as for futures and options will be inevitably based on these values. Spot markets also tend to be incredibly liquid and active for this reason. Sellers and consumers will engage in the spot market and then hedge in the derivatives market.

  • In the SPOT market you need to own the cryptocurrency/currency that you want to trade while in the futures market you can buy contracts that represent a cryptocurrency/currency with another one.

  • In the SPOT market you can’t use leverage, in the futures market you can do it.

  • In the futures market your trade position can be liquidated and make you lose money if the volatility is extreme and your position is liquidated due to the leverage, there’s no liquidation in the SPOT market as there’s no leverage.

What Does Spot Market Mean?

Spot markets trade commodities or other assets (like cryptocurrencies) for immediate delivery. The word "spot" refers to the trade and receipt of the goods being made "on the spot".

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