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 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.