Spot market - English Spot Market, is a securities market, foreign exchange market, or commodity market in which both perishable and non-perishable goods are bought and sold for cash, either for immediate delivery or within a short period of time (usually no later than the second business day of the transaction) . The spot market is also known as the "cash market" ( English Cash Market) or "physical market" ( English Physical Market). The parties make calculations at the market price at the time of the transaction, and not at the market price that will be at the time of delivery. An example of a commodity that is regularly traded on the spot market is oil, which is traded at current prices and physically delivered at a later date.

In order for a product or raw material to be traded smoothly on the spot market, it must be homogeneous, that is, different lots must be interchangeable. Some examples of raw materials are grain, beef, oil, gold, silver, electricity, natural gas, etc. Raw materials and goods must be standardized and meet certain standards in order for them to be accepted for trading on the spot market.

The largest spot market in the world is the international foreign exchange market Forex ( English Forex). It carries out the simultaneous exchange of one national currency for another when the investor makes a transaction on a certain currency pair. For example, EUR/USD is the most popular currency pair that is traded on the Forex market. If an investor expects the Euro (EUR) to strengthen against the US Dollar (USD), he will buy. If he expects the Euro to weaken, then sell. However, the main advantage of the Forex currency market is its very high liquidity, meaning the investor can enter and exit the market whenever he wants.

The spot market differs from the futures market in that the price in the futures market depends on the cost of storing the goods and future price movements. In the spot market, prices depend solely on current supply and demand, making them more volatile.

Another factor that influences spot market prices is the physical properties of the goods, in terms of whether they are perishable or not. Non-perishable commodities such as gold or silver will trade at a price that reflects future price movements. Prices for perishable goods such as grains or fruits will depend on supply and demand. For example, tomatoes purchased in July will reflect the current surplus in the market and will be less expensive than in January, when demand exceeding supply will cause prices to rise. That is, an investor cannot buy tomatoes for January delivery at July prices, making them an ideal example of a commodity traded on the spot market.

Any market, be it stock, commodity or currency, can be divided into spot and futures. Accordingly, the first one has a spot price, and the second one has a price based on futures contracts. What is the difference between them? How do the spot and derivatives markets function? What do these prices have to do with the Forex market?

Spot price on the market - what is it?

A spot market is a market in which transactions are carried out at the current time without any prior agreements. In this case, delivery of the purchased goods is carried out within a maximum of 2 banking days. The spot price is the value of the asset that was established at the time the current transaction was concluded. In other words, the buyer transfers money to the seller, the latter delivers the goods (in the foreign exchange market this would be currency) within two days.

There are several types of spot prices. They are classified depending on the moment of fulfillment of delivery obligations. The TOD price (derived from the word Today, that is, today) assumes that the “Money-commodity” exchange will occur today. If delivery is expected tomorrow, then the market price is TOM from the word Tomorrow. The Spot price indicates delivery no later than two banking days after the conclusion of the contract.
The spot market is a market for immediate cash exchange. Demand is met by supply, the seller meets the buyer and the goods pass from one owner to another.

Spot and Forex - what do they have in common?

Instruments that are traded at spot prices can be financial assets such as stocks, bonds, commodities or currencies, things that are typically traded on real exchanges. In order to make money on price fluctuations for certain goods, contracts for difference or CFDs have been introduced, which actively offer Russian brokers in its range of services. What are they?

Essentially, CFD is the only spot market instrument that is used in the Forex market. The price of the contract changes in the same way as the price of the underlying asset. For example, if the price of wheat on the stock exchange rose to a certain level, the price of a contract for difference increased to the same level.

CFDs were artificially introduced into the market precisely so that clients of brokerage companies could benefit from speculation in stocks, bonds, and commodities. Brokerage companies participating in the Forex market do not have the right to provide traders with the opportunity to directly trade in shares and other stock instruments. Contracts for difference made it possible to bypass this nuance and were created specifically for stock market speculators. CFDs are what the over-the-counter forex market and the spot market have in common. CFD transactions are concluded on a “here and now” basis, and are sold at the spot price.

CFD trading is carried out in the MetaTrader 4 trading terminal or any other terminal provided by the broker. The list of available assets for trading is indicated in the general list. For example, in the company Forex4You, it looks like this.

The tool code is indicated after the hash mark. If you move your cursor closer, you will see the full name of the symbol. In the example pictured above, you can see a chart of Apple stock. Any client of Forex4You can make money on fluctuations in its exchange rate without an actual purchase with the transfer of ownership rights and other procedures associated with this. Of course, Forex market traders may also not count on dividends, but here they were not initially bet on them.

You can buy or sell a contract for difference at the spot price at the time at which the underlying asset is traded on the exchange. In this example, Apple shares are available for opening transactions from 15.30 to 20.30 hours, broker's trading platform time.

Features of the derivatives market

In the derivatives market, transactions are concluded with a time delay of up to a year. The buyer and seller agree on delivery now, and it occurs after a certain time on the appointed date. Futures and options are traded on the derivatives market. That is, not the financial assets themselves, but their derivatives - the rights and obligations to buy or sell any instrument.

So, if you purchase a futures contract on the euro-dollar currency, you have an obligation to purchase the asset at expiration. This is the main difference between the spot price (current) and prices for futures contracts. Options and futures cannot be traded on the spot market because the transaction cannot be completed in such a short period.

With options, you have the right to buy or sell an asset in the future. It should be noted that you may not exercise this right if at that time the price does not satisfy you. The premium you pay the seller for the contract will not be returned to you. It is the very payment for the opportunity to buy a financial asset at a price fixed today in the future.

In the derivatives market, options and futures are mainly purchased by manufacturers, importers or exporters, and large hedge funds to insure currency risks. Derivatives are also used by some traders to hedge risks. To do this, they buy one asset at a spot price and buy an option to sell the same asset on the derivatives market. The spot trade closes at the same time the option expires.

If a transaction on the spot market brought the expected positive results, and by the time the option expires, the right to sell the currency at the stated price in the past will bring a loss to the trader, then he simply will not use it. In this case, the trader will earn less, of course, since he will pay a premium to the seller for purchasing the option.

Basically, the concept of spot prices is inherent in the stock, commodity and foreign exchange markets. In narrow circles of traders, the Forex market is also called the spot market, since transactions are carried out instantly. If the broker operates using ECN technology, the operation scheme is very similar to the functioning of the spot market. However, we should not forget that the Forex market is still an over-the-counter market.

We remember that the profitability of trading very much depends on

Spot market

(Spot Market)

In modern conditions, spot and derivatives markets have become widespread

Transactions and price formation on the spot and derivatives markets, instruments used by participants in the derivatives and spot markets to conclude transactions

Concept of the spot market Transactions on the spot market Types of Spot Trades Buy or Long Sell ​​or short Formation of prices on the spot market General characteristics of the derivatives market Types of transactions on the derivatives market Forward contract Futures contract Option contract Derivatives market participants Professional stock exchange players - speculators Participation of hedgers in trading on the derivatives market Arbitrageurs are another category of derivatives market participants Equity Portfolio Managers What are the similarities and differences between the spot and derivatives markets? Urgent Russia "Classical theory" of the derivatives market "Classical" and modern hedging concepts Sources and links

Spot market - definition

In terms of execution, options are divided into two types: American and European. American options can be exercised any day before the expiration date of the contract. European - only on the day of contract execution. Most of the contracts concluded in world practice are American options. Thus, fixed-term contracts have common and distinctive features.

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Dictionary of legal concepts

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This concept has a huge number of meanings, limited not only to the category of finance. However, the word “spot” is most widely used in trading jargon. Below we will look at the meaning and application of this term in stock market trading.

Spot (from English spot) is a form of settlement that takes place in a short period of time, up to three days. Synonymous with cash or cash transaction. In the foreign exchange market this period does not exceed 3 days. In general, this entire section of the exchange is called the spot market. Here are three types of deliverable ETS contracts:

• TOD (today, from English today) – delivery occurs on the day of the transaction, most often (depending on the broker) at 16:30 Moscow time (T+0).
• TOM (tomorrow, from English tomorrow) – delivery occurs the next day after the transaction. Today the contract will remain in the portfolio as TOM (T+1), but the next day it will turn into TOD and initiate delivery at 16:30.
• SPT (on the spot, from English. spot) is a classic extreme spot contract with settlements in two days (T+2). Following the logic of the previous examples, we can correctly assume that after the transaction it will turn into TOM the next day, and a day later into TOD.

For example, the purchase of any shares on the stock exchange is carried out under a spot transaction SPT(T+2). This means that you pay for the shares today, but become the legal owner only after 2 days. This time is necessary to register you in the register of shareholders in the company as the new owner of shares.

By default, only working days are taken into account.

Today no one will say when the first spots appeared. The word itself comes from English spot – dot, place – and involves the exchange of goods for money, on the spot. When exchanges didn't have highly accurate transaction systems, payments from bank to bank actually took one or two business days. With the arrival of computers, Spots were “left” to pay in two business days, although the terms of the transaction are fixed “now”.

Subtleties of trading on the spot market

Banks almost never provide access to the deliverable foreign exchange market as part of their brokerage license. The provision of such services is a direct loss for currency exchange offices within a credit institution. By providing clients with market currency quotes, the bank can no longer make money on the spread in the exchanger.

Three contracts TOD, TOM and SPT differ from each other and have different prices.

TOD is cheaper than TOM, and TOM is cheaper than SPT.

This is due to the specifics of contract trading. Each subsequent contract is more expensive than the previous one by the size of the key rate divided by the number of days in a year. This is why futures on the derivatives market are more expensive than the underlying instruments.

If the client does not wish to receive delivery or does not have enough funds in his account to supply the full lot, he has the right to refuse delivery by assigning his account the status of “non-deliverable” in advance. Then his TOM will carry over indefinitely without ever becoming a TOD contract.

Examples of working with spot transactions

Let's say we need to purchase $10,000 to purchase foreign goods. To do this, rubles are deposited into the brokerage account, after which the client must decide at what rate he wants to buy and submits a purchase order. If the price does not matter, a purchase order can be placed with the mark “at market” and then the transaction will take place at the current price. It is economically feasible to purchase the nearest contract, that is TOD– delivery will be faster and its price, although by pennies, is the lowest of the whole trinity. There is a deal to buy 10 lots USDTOD. After delivery, the currency can be recalled to client currency

details and use at your discretion. In the opposite situation, when you need to get rid of $10,000 worth of currency, the general mechanics will not change. A currency will be added to the brokerage account, which can be sold using 3 contracts, the most expensive of which is SPT, however, the low liquidity of this instrument does not always allow free transactions with this instrument. It would be most preferable to use a contract TOM. After the sale of 10 lots USDTOM the price will be fixed and all you have to do is wait for the next day, when TOM will migrate to TOD And TOD after 16, it will “turn” into real rubles that can be withdrawn.

Currency transactions Spot

In the Forex currency market, the concept of spot is used in a slightly different way. In fact, any position there is referred to as a spot. When a forex company transfers a client's positions overnight, they are processed ( English swap to spot) who sell the expiring spot and purchase a new one.

At such moments, the broker makes money on the spread between rolling positions, which is actually a hidden fee for the leverage provided.

Some players began to call the act of transfer itself or that future contract “spot”.

• There is also the concept of the so-called “spot rate”, which is positioned as an expression of the currency of one state in the currency of another. Such relationships are extremely popular among Forex traders and allow you to trade very exotic currency pairs.

Finally, in addition to spot, there are a number of other types of transactions aimed at receiving or selling currency as quickly as possible: these are forward outrights and currency swaps, which are even more tied to large market players.

Therefore, returning to the beginning of the material, we emphasize: a number of traders do not engage in spot transactions at all, paying attention to simpler and more profitable trading methods.

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It is no secret that when conducting transactions on any market, be it foreign exchange, commodity or exchange, contracts can be executed either immediately or after a certain time. Based on the time of execution of contracts (i.e., actual deliveries of goods and/or funds specified in the contract), markets can be divided into forward And spot.

In forward markets, the execution of transactions is delayed in time and can occur a week, a month, or even a year after conclusion. Spot markets usually mean markets with instant execution of transactions, although this is not entirely true.

The fact is that in international trade (and Forex is an international, global market), mutual settlements often encounter certain delays associated with the peculiarities of the functioning of financial institutions in different countries, as well as with difficulties caused by the possible location of counterparties in different time zones. A distinction is made between the date of conclusion of the transaction and the date of physical receipt of funds to the account of the counterparties. The last of them is called value date.

On the spot market, transactions are carried out with a value date no later than the second business day after the day the contract was concluded. In this case, transactions are divided into:

- tod(short for today): when settlement occurs on the same day;

- tom(short for tomorrow): when settlement is made the next day after the transaction is concluded;

- spot: when the value date is the second business day after the transaction is concluded.

Thus, contracts with a value date on the second business day are called spot contracts. In turn, those contracts whose value date is more than 2 business days away from the date of the transaction are called forward.

As you know, current prices of goods (and in the case of Forex, current quotes of currency pairs) are often called spot (as opposed to forward or futures, i.e., prices for delivery after some specified time). However, even Tod, Tom and Spot prices for the same product (currency pair) may differ from each other. But, firstly, the difference is, as a rule, very small. And, secondly, most transactions on the spot market occur according to the conditions and prices of Spot. Therefore, it is the Spot price that is considered to be the current price of a product, security or currency pair.

Of course, futures and options also play a role in the Forex market. And there are many traders in whose trading they occupy a significant share. But for the most part, the foreign exchange market is a spot market, since the turnover of transactions on spot terms is much higher than the volume of trading in forward foreign exchange instruments.