What Is a Spot Trade?
Posted On July 29, 2022
A spot trade, also known as a spot transaction, refers to the purchase or sale of a foreign currency, financial instrument, or commodity for instant delivery on a specified spot date. Most spot contracts include the physical delivery of the currency, commodity, or instrument; the difference in the price of a future or forward contract versus a spot contract takes into account the time value of the payment, based on interest rates and the time to maturity. In a foreign exchange spot trade, the exchange rate on which the transaction is based is referred to as the spot exchange rate.
A spot trade can be contrasted with a forward or futures trade.
- Spot trades involve securities traded for immediate delivery in the market on a specified date.
- Spot trades include the buying or selling of foreign currency, a financial instrument, or commodity
- Many assets quote a “spot price” and a “futures or forward price.”
- Most spot market transactions have a T+2 settlement date.
- Spot market transactions can take place on an exchange or over-the-counter.