Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Spot Market

What it is:

Also called the cash market or the physical market, the spot market is where assets are sold for cash and delivered immediately.

How it works (Example):

Spot markets differ from futures markets in that delivery takes place immediately. For example, if you wish to purchase Company XYZ shares and own them immediately, you would go to the cash market on which the shares are traded (the New York Stock Exchange, for example). If you wanted to buy gold on the spot market, you could go to a coin dealer and exchange cash for gold.

The foreign exchange (FOREX) market is one of the largest spot markets in the world. People and companies all over the world are constantly exchanging one currency for another as transactions occur all over the globe.

Why it Matters:

It is important to know the difference between the spot market and the futures market, as well as the difference between spot prices and futures prices. This difference -- known as the time spread -- is important economically because it illuminates the market's expectations about futures prices.

For the most part, spot markets are influenced solely by supply and demand, whereas futures markets are also influenced by expectations about future prices, storage costs, weather predictions (for perishable commodities in particular), and a host of other factors.

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