What is a spot?
A spot market is one where securities, commodities or foreign currency are traded ‘on the spot’, and delivered to the buyer right away. Spot is also used to describe the current price of a commodity, e.g. gold and silver, as well as a trade that is completed instantly, rather than on a future date.
Where have you heard about spots?
If you’ve ever traded gold or silver, you will know that each commodity has a spot price. For example, the UK gold spot price indicates the price at which you can buy and receive gold right now.
Similarly, the spot exchange rate tells you how much it will cost to buy and receive a foreign currency. You’ll see it in any airport currency exchange.
What you need to know about spots...
Spot markets are also known as the ‘physical market’ or ‘cash market’ because trading and the exchange of goods happen immediately.
One of the best-known spot markets is the Forex market, where currencies change hands immediately at the spot exchange rate.
Spot markets are the opposite of futures markets, where trades are settled at a later date and based on forward prices.