In the world of Forex trading, there prevails various terms that are salient for you to understand. This is so for deep understanding on the topics prevent you to take the incorrect move during trading. Accordingly, one of these paramount terms is spot market.
Although it is famously known as spot market, it occasionally comes in different names, cash market and physical market. In spot market, the word spot resembles the time and place of the trade, which occurs immediately. Also, it has the name cash market for, at some occasions, it is used for cash payment.
The market is a venue for the transactions of commodities or financial instruments. Unlike future market, transactions in spot market occurs immediately, meaning that the trade happens at an immediate time following the transactions.
Usually, it takes approximately seven business days for commodities and securities. Meanwhile, it requires around two business days for foreign exchange delivery.
On the spot market, there exists a quoted price named spot price. Spot price, accordingly, determines the purchase and sale price.
Spot Market Trading
At first, this type of market trading was the most original form of trading. Although it recently loses popularity to derivative markets of the future market, it still has some big strong markets such as Forex trading.
For the trade is physical, it can take place so long as the infrastructure appropriately facilitates the transactions, such as an organized market, an exchange, and an OTC. The foregoing adds up to the disadvantage of the market, such as the inflexible trade time, physical delivery, and counterparty-default-risk-controlled interest rate.
For further information, spot market is a trade venue for both perishable and non-perishable commodities. Perishable commodities are, for instance, fruit and grain, in which supply and demand play an essentially influential role. As for the non-perishable commodities, gold and silver are fine examples.
Writer: Doddy D. Wahyuwono