Investing in Spot Trading: The Importance of Strategy and Planning

Spot Trade Explained

Spot trade occurs in spot markets. Assets and commodities are bought at current market value. These transactions are immediate, and there is a physical transfer of securities. Usually, the transactions get completed within two working days—denoted as T+2 days.
Buyers and sellers determine the price through supply and demand

. Spot markets encourage a transparent environment. In such trades, each transaction member is fully aware of all the prices and details.
Unlike future markets

, there is no minimum capital limit for spot market transactions. At times, investors end up buying assets at an inflated price due to volatility. Later, the price declines to the fair value. It is a constant risk associated with volatile assets. In addition, there is less scope for recourse once the transaction gets completed.
Spot trades occur swiftly and in real-time; as a result, there is a lack of planning. Spot market transactions are inflexible, and parties have to handle physical delivery. In spot trade settlements, the interest rate is influenced by counterparty default risk

. Therefore, investors indulging in spot trading should be ready with an investment strategy and planning. Real-time decision-making is a high-pressure situation—investors must control their emotions, else they end up with significant losses.