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What is a Spot Trade?

A spot trade is an asset or commodity transacted and delivered immediately.

How Does a Spot Trade Work?

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 Does a Spot Trade Matter?

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.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.