The English word "Spot" literally means "place." Therefore, “in Spot” means “in place,” and the spot market is where instant trades are made. It is logical to assume that they trade in this place a product whose properties and characteristics are well known. This product must be standardized anywhere in the world. The logic didn’t let you down - the spot market trades in currency, precious metals, stones, grain, meat, gas, oil and other “essential” goods.
Market participants
Of course, each of them is grouped in a certain place. For the sale and exchange of national currencies, various financial exchanges are used. In the auction participate:
- Traders - traders who earn by selling and exchanging currencies, acting in their interests.
- Brokers - people working "on behalf of and on behalf of", making transactions in the interests of third parties.
Do it on time
According to the terms of payment and fixing the exchange rate of the currencies involved in the sale, transactions are divided into three groups:
- Payment on the day of commission (TOD from English today - today).
- Next day payment (TOM - tomorrow, tomorrow).
- A day after the conclusion of the transaction.
From theory to practice
The gold spot market, in comparison with the currency and securities market, has less dynamism, but greater reliability, therefore the gold exchange rate is not so high, but at least stable. Currency jumps are explained by the fact that national currencies and corporate stocks are more prone to political conditions.
We give an example. Now there is a situation with US government debt. The likelihood of a technical default forced the spot market to respond instantly to the fall in demand and the price of US Treasury bonds, but gold is always in price. In addition, not all bidders in this area work with speculative goals (to buy goods at a lower price, in order to sell more expensive after some time). Many players conclude contracts for the needs of production (medicine, electronics, jewelry).
For the most part, natural gas is sold on the forward market (where contracts are concluded today and goods are delivered in the future), the spot gas market is small in volume. They resort to transactions on the principle of "intercept for a while." Prices due to shutdowns of North Sea gas production are approaching prices for Gazprom products sold under futures contracts. This will lead to an increase in Russian gas sales in Europe.
For the purchase of products (grain, meat, sugar), forward exchanges are mostly used (here you can conclude a contract for the supply of wheat, which has not yet grown). The spot market is for those who incorrectly calculated their needs or were unable to maintain stocks.
One of the most affected by the situation is the sphere of production of the metallurgical industry. The Metalsea index (the arithmetic average of a certain list of products of three price categories is taken for its calculation: from 1 ton, from 5 ton, from 20 ton, divided by 100), for several months it increased or decreased weekly. Recent events in Syria and the related reaction of world leaders have caused negative dynamics in spot markets.