SPOT MARKET

A spot or cash market is a financial market where assets e.g., stocks, are traded, and transactions are settled on the spot. Settlement and payment are made within a short period, typically 1-2 business days. Spot market transactions can take place on an exchange or over the counter.

The spot price is the current quote for immediate purchase, payment, and delivery of a particular commodity. Investors can execute trades and see the results immediately. By this, they seem to have a sense of control and satisfaction. As a result of this, spot markets tend to be exceptionally liquid and active with available buyers and sellers, making it easier to enter or exit positions. Due to constant trading in the market, there is a high level of transparency in the market. The risk of counterparty defaulting is minimized when juxtaposed with what happens in the derivative market. It can also help hedge against price fluctuations in underlying assets, such as commodities or currencies.

On the other hand, the spot market can be quite volatile, especially in times of economic uncertainties. Tax implications and other expenses are usually incurred when trading on the spot market. The market is also one of the finance markets that require strict regulatory oversight to avoid unfair market practices such as price manipulation in the market.