Spot Trade

A spot trade is a transaction in which a financial instrument—such as a currency, commodity, or security—is exchanged for immediate (or near‑term) delivery at the current market price, called the spot price. Settlement typically occurs within one or two business days. Spot trades involve direct ownership or physical delivery of the asset, unlike futures or forwards, which lock in a price for a later date.

Key takeaways

Spot trading executes at the current market price (spot price) for immediate or near‑term delivery.
Settlement usually occurs within one business day (many products) or two business days (common in forex).
Spot prices fluctuate constantly in liquid markets as buy and sell orders arrive.
Spot trades confer direct ownership or the right to physical delivery, distinguishing them from derivative contracts.
The difference between a forward/futures price and the spot price reflects time value, interest rate differentials, and carrying costs.

How spot trades work

Execution venues: Spot transactions occur on exchanges (common for commodities and some securities) or over the counter (OTC), which is common in foreign exchange.
Settlement timing: Forex spot contracts usually settle in two business days; most other instruments settle the next business day.
Price formation: The spot price is set by active buy and sell orders. In highly liquid markets (for example, major currency pairs), the spot price can change by the second.
Liquidity: Large, liquid markets enable quicker price discovery and tighter spreads. The global foreign exchange spot market is one of the largest and most liquid markets.

Important factors in spot trading

Interest and time value: For instruments with later settlement, the delivered price incorporates the spot price plus interest or carrying costs until settlement. In FX, that calculation reflects the interest rate differential between the two currencies.
Counterparties and settlement risk: Spot trades are commonly executed between financial institutions but can also involve corporations and other market participants. Settlement conventions and counterparty credit are important considerations.
Commodity specifics: Many commodity contracts are traded on exchanges and are often closed out before physical delivery, with final gains or losses settled in cash.
Product conventions: Different asset classes have distinct settlement rules and market structures (e.g., bonds and interest-rate products often settle on the next business day).

Spot market and spot price

Spot market: A market where instruments are traded for immediate or near‑term delivery and payment—often called a cash or physical market.
Spot price: The current quoted market price for immediate delivery of a currency, commodity, security, or other instrument. Spot prices are commonly used as benchmarks when pricing forwards, futures, and other derivatives.

Spot rate vs. forward rate

Spot rate: The current market price for immediate delivery.
Forward rate: A price agreed upon today for delivery at a specified future date. The forward reflects the spot price adjusted for the time value of money and any carrying costs or interest rate differentials.

Bottom line

Spot trading enables the immediate exchange of financial instruments at prevailing market prices, providing direct ownership or delivery of assets. It operates across exchanges and OTC venues, with market liquidity and settlement conventions shaping pricing and risk. Spot prices also serve as foundational references for forward and derivative markets.