Depending on the item that's being traded, a spot price can point towards market expectations of future price movement. Practically, the spot and futures price should have a difference that's equal to the finance charges and any earnings outstanding to the holder of the security, in line with the cost of carry model. For example, in regards to a share, the price difference between the spot and the forward is commonly considered entirely for the dividends payable in the span minus the interest payable on the purchase price.

Any other sort of cost price would bring an arbitrage opportunity and risk free profit. In comparison, a perishable commodity also known as a soft commodity doesn't grant this arbitrage, as the storage cost is higher than the expected futures price of the commodity in question.

Because of this, a spot price show the current supply and demand, not the predicted future price migration.

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This type of transaction is referred to as the spot date and also simply as spot. The spot can be different for various types of transactions. In the Forex, the spot date is usually two banking days forward for the traded currency pair. A standard settlement date is worked out from the original spot date.

For example, if today were 1 August, the spot date would be 3 August and the one month date would be 3 September providing that all these dates are business dates. If a trade has two dates, for example a foreign exchange swap, then the first date is taken as the spot date.

Forex/currency spot essentials

Below are some example of other kinds of spots. The simplest way to explain this transaction is with an example. The price of apples is cheap in June and will be expensive in December, but you can't buy your apples for December in June as they are perishable goods and they will be spoilt by December. The apples are effectively different commodities in June than they are in December. These rates are determined using the bootstrapping method. This uses the price of the securities currently being traded on the market from the coupon or cash curve.

This results in a spot curve that occurs in various types of securities. This is referred to as a foreign exchange spot or FX spot and is an acknowledgement by two parties to purchase one currency vs selling another currency at a set price for settlement on the spot date. The spot and futures markets are opposites in many ways.

The spot market exists for commodities and securities that are traded on the spot, with specific spot rates, as opposed to the futures market,s which is an auction based market used to buy and sell financial instruments at a specified later date. In a spot market the orders and prices are also referred to as spots because of their immediacy all transactions are sorted there and then whereas the futures markets are based on the buying and selling of future commodities.

The spot rate, also known as the spot price, is the price quote for the prompt settlement on a security, commodity or currency.

In transactions involving currencies, the spot rate is swayed by the interest of businesses and individuals in addition to that of forex traders. The spot rate refers to currencies but also to assets including bonds and commodities. Our glossary has some very useful information on the topics involved in spot and the stock market in general. Take a look at our page for soft commodity or for the foreign exchange market.

The Difference Between Trading Spot Forex and Currency Futures - Forex Training Group

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There have been a general confusion on spot forex trading and futures trading by some sites promoting spot trading. The difference between the two is little, but it's worth noting. Spot forex trading has long been the preferred trading vehicle as opposed to futures trading by forex professsionals due to several reasons. According to the book 'High-Powered Investing All-In-One For Dummies', "currency futures markets operate alongside the interbank market, but they are definitely the tail being wagged by the dog of the spot market.

As a market, currency futures are generally limited by exchange-based trading hours and lower liquidity than is available in the spot market.

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Spot forex trading are contracts bought and sold with immediate effect based on the current price. Because prices are settled in cash based on current prices on the spot contrary to forward market, it is often known as 'physical market' or 'cash market'. While the settlement of spot forex trading will take only two days, futures transactions can have longer delivery time may be a few months into the future. The simplest form of spot forex trading is when you visit a money changer and make a transaction for a foreign currency.

The transaction take place immediately based on the current market price.