A spot market is a financial market where financial instruments or commodities are traded for immediate delivery. In a spot market, settlement normally happens in T+2 working days, which means delivery of cash and commodity must be done after two working days of the trade date. A spot market can be through an exchange or over-the-counter (OTC) . Spot markets can operate wherever the infrastructure exists to conduct the transaction.

Spot markets can be contrasted with futures markets, which trade in forwards, futures, or options contracts. In a futures transaction, the agreement is to a price now, but delivery and transfer of funds will take place at a later date.

Spot markets are also referred to as “physical markets” or “cash markets” because trades are swapped for the asset effectively immediately. While the official transfer of funds between the buyer and seller may take time, such as T+2 in the stock market and in most currency transactions, both parties agree to the trade “right now” .

Spot markets can be used to trade a variety of financial instruments, such as commodities, currencies, and securities. The spot price is the current market price of a commodity, financial product, or derivative product, and it is the price at which an investor or trader can buy or sell an asset or security for immediate delivery.

Some characteristics of spot markets include:

• Price: The price on the spot market is the going price for a trade executed on the spot and is known as the spot price or the spot rate. Price is determined by buyers and sellers through an economic process of supply and demand.

• Settlement: Most spot market transactions have a T+2 settlement date.

• Flexibility: The spot market is more flexible than a futures market since they can be traded on lower volumes.

• Immediate delivery: Spot trades involve securities traded for immediate delivery in the market on a specified date.

• Types: There are two main types of spot markets – over-the-counter (OTC) and organized market exchange.

In summary, a spot market is a financial market where financial instruments or commodities are traded for immediate delivery. It can be used to trade a variety of financial instruments, and settlement normally happens in T+2 working days. Spot markets can be contrasted with futures markets, and they are also referred to as “physical markets” or “cash markets”.