What Is Spot Trading?
Spot trading refers to the immediate exchange of a financial instrument at the current market price.
It is the most common type of trade in various markets, including cryptocurrency, forex, commodities, bonds, and stocks.
The settlement period for spot trades is typically two business days in traditional markets.
Spot trades are considered more speculative and carry a higher risk than transactions conducted on the forward market.
Prices can fluctuate rapidly in response to market demand and supply.
The real-time supply and demand dynamics of specific goods determine prices in the spot market.
Contrasting the spot market, the futures market involves contracts on a futures exchange trading floor.
These contracts are binding and settled through a clearinghouse.
The futures market allows investors to hedge against price movements in an asset class.
Cryptocurrency Spot Trading
In the realm of cryptocurrencies, spot trading involves buying and selling cryptocurrencies for immediate settlement.
It allows traders to realize profits or losses quickly rather than wait for price fluctuations.
Most cryptocurrency exchanges support spot trading, while some offer margin trading services, which involve leveraging borrowed funds to increase trading positions.
Spot trades in cryptocurrencies are typically executed using digital wallets, software programs that store and encrypt private keys.
The exchange or third-party providers can provide these wallets.