The spot market is a financial market where financial assets are traded for immediate delivery or settlement. It is a market where buyers and sellers can engage in instant buying and selling, and the traded assets are immediately delivered.
The spot market is often contrasted with the futures market. In futures markets, an asset is bought or sold at a predetermined price on a future date, whereas in the spot market, transactions occur instantly and at current market prices.
Spot markets exist for various financial assets. For example, the spot foreign exchange (forex) market is where currencies are bought and sold for immediate delivery. The spot commodity market is where commodities such as gold, oil, or agricultural products are bought and sold for immediate delivery. The spot stock market is where shares of companies are bought and sold for immediate delivery.
Spot markets typically have high liquidity. This means that buyers and sellers can trade large amounts of assets. Spot markets are also important for price discovery. The instant buying and selling transactions that occur in the market help determine the prices of assets.
Spot markets are used by speculators, arbitrageurs, and risk managers. Speculators engage in spot market trading to profit from short-term fluctuations in asset prices. Arbitrageurs take advantage of price differences in different markets to make risk-free profits. Risk managers use spot markets to manage their risks.
In summary, the spot market refers to a market where financial assets are traded for immediate delivery or settlement. Transactions in this market occur at current market prices, and assets are immediately delivered. Spot markets have high liquidity and are important for price discovery. They are used for speculation, arbitrage, and risk management.