Spot Trade

What It Is:

A spot trade is an asset or commodity transacted and delivered immediately.

How It Works/Example:

Also called cash trades, spot trades occur in the spot market and are characterized by the immediate or near-immediate delivery of the commodity in question. Foreign currency, stocks, and commodities are typically transacted through spot trades.

For example, 10 shares of stock XYZ on a $100 spot trade would be delivered upon the cash payment of $100. Spot trades are the opposite of futures contracts, whereby two counterparties agree to transact some asset or commodity at a specific price and date in the future.

Commodities are also frequently bought and sold on the spot market. For example, crude oil is sold for a certain price per barrel on the spot market.  The oil is then delivered over time at the price that it was purchased.

Why It Matters:

With the advent of internet-based trading systems and electronic money transfers, spot trading has become more prevalent over the past decade.

The currency market is the largest spot market in the world -- to learn more about trading foreign currency (known as FOREX), check out The Basics of Trading FOREX.