Spot
Then there is the futures transaction which is where the commodities can be purchased and expected to be delivered in a short and specific time frame. Being a forward moving physical market this form of transactions are bought and sold at spot prices.
The spot market is also sometimes referred to as a cash market or physical market because the prices are settled in cast at the time the transaction is agreed upon. This immediate form of buying and selling is sometimes considered more effective as opposed to forward pricing conditions.
A good example to use to portray this spot market transaction is the crude oil trading. The crude oil transaction is done on a future’s statistics but is sold on spot prices and its physical delivery is done within a short time frame previously stipulated and agreed upon. Also to be noted is that these spot trading style transactions are done immediately as opposed to having the convenience of a longer time frame for settling the “account”
Because of the time frame element involved spot trading is almost opposite to futures contracts in quite a few significant ways. The spot trading style usually expires well before any physical delivery of goods.
The most common kind of spot trading is the foreign exchange. There are normally compensations expected if the time frame given for settling the value of the transaction immediately is not met. The transaction compensation is for the time value and duration delay for delivery. Since these transactions are settled electronically, the forex market is essentially instantaneous.
