Today I decided to talk to you about the spot foreign exchange market, what are its pros and cons. Nowadays, operations carried out by traders on the Forex market are called transactions to reduce and increase the exchange rate of a currency, while in the official literature such actions are called speculation on the spot currency market. In reality, everything is somewhat more complicated; today I will try to dispel some of the misconceptions of novice traders that arise as a result of inaccuracies in the translation of foreign literature.

I want to start with the fact that the Forex market has existed for more than 40 years; at the beginning of its appearance, it worked as an exchange service where large banks were serviced - this was the spot currency market.

I specifically highlighted the word “immediate” in quotation marks, since today banks take several days to settle spot orders, usually 1-2 days. In this regard, after the bank completes a transaction, the money is credited to the account not at the same second, but after a certain period of time.

In such a situation, the spot market provides a hub that helps two clients wishing to exchange currencies find each other. For a clearer understanding, I suggest you consider an example. Let's say one person has 100 dollars, another has rubles. The first one wants to sell his dollars, the other one wants to buy 100 dollars. As a result, these two people submit their requests in one center, where they satisfy their needs. In the end, the purchase/sale transaction is completed, and the “application center” charges a certain fee for this.

Distinctive features of the spot market from Forex:

• In the spot market, a trader cannot use leverage, since it simply does not exist there.
• Currency exchange is carried out from account to account.

Spot currency market and dealing centers

Many novice traders often wonder whether trading through a broker is trading on the spot market or not? Unfortunately, I cannot give you a definite answer to this question. I hasten to explain why. The fact is that many brokers provide traders with several types of accounts:

1. Ordinary ones, in which the trader’s counterparty is the broker himself.
2. ECN accounts where orders are issued to liquidity providers.

If you are trading on a regular account then you are simply trading with a broker, your trades are virtual. If we assume the fact that the DC always acts as a counterparty to the trader, and does not sum up the outcome in a way that is beneficial to him, then such trading can be called analogous to trading on the spot market.

The training will allow you to gain not only the necessary theoretical knowledge, but also practical skills in using the opportunities of the spot market.

Any financial market, regardless of whether it is a stock market or a foreign exchange market, can be divided into two separate segments: the derivatives market and the spot market.

And if everything is more or less clear with the derivatives market, because... its specificity fully corresponds to the name and all transactions carried out on it are not implemented immediately, but after a time specified by the parties. Not everyone knows what the spot market is. Let's look at the difference between these types of markets and what the term "spot" means.

A spot market is a market in which all goods (currency, securities, raw materials, etc.) are bought and sold exclusively for cash and on the basis of immediate delivery.

The second name for the spot market is the cash market. The parties conduct transactions on it, guided by the market price of the asset established at the time of the transaction, and not by the one that will prevail in the market at the time of delivery.

This detail is especially important for traders, primarily foreign exchange traders, which is why almost all spot markets work with it. And the largest spot foreign exchange market is, naturally, Forex.

Features of the spot market

1. Carrying out asset purchase/sale transactions and settlements thereon within a maximum of two business days.
2. A significantly higher degree of asset volatility than in the derivatives market. This situation arises due to the fact that pricing on the spot market largely depends on the relationship between supply and demand for the asset.
3. No interest rate on the value of the delivered asset.
4. Fixed exchange rates for currencies and other assets.
5. Carrying out most of the transactions electronically, with confirmation of transactions through advice notes (electronic notices).

Best Forex Brokers

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Common features of the spot market and the derivatives market

1. Market relations in both cases are based on the classical laws of a market economy. This is manifested in pricing principles, competition, etc.
2. The state controls participants in both markets using the same documents and regulations.
3. The general infrastructure of markets, which manifests itself in the same financial institutions and technical means serving market participants.

In principle, similar features of the derivatives and spot markets relate, for the most part, to organizational and technical issues that are not particularly interesting to us traders. It is much more important what their differences are, because based on them, the trader selects the optimal market for himself.

Differences between spot and derivatives markets

1. In the derivatives market, it is often not even the assets themselves that are sold and bought, but the rights and obligations of the parties in relation to them. That is, for example, when entering into a contract, you do not receive the asset that appears in it, but become the one who has the rights to it after the expiration of the contract.
2. Various assets and trading instruments. For example, in the derivatives market you can work with the above-mentioned futures, options and others. There is no such thing on the spot market; only real assets are quoted there, which you immediately receive for your use.
3. In the derivatives market, not only the delivery of an asset is often delayed, but also the settlements on it. When concluding a contract to purchase an option, you do not pay its full value, but only pay part of the “guarantee security”. In the spot market, settlements are made immediately and in full.

Experienced traders combine both markets in their work, conducting both immediate and deferred operations. The main thing is that you can work and earn money in any type of market, if you have the desire. By the way, if you are interested in the spot foreign exchange market, here is how to work with it.

Best regards, Nikita Mikhailov

Currently, many traders understand the term FOREX as concluding transactions for the growth or depreciation of a currency pair, while in the literature these speculations are often identified with transactions on the spot currency market. In fact, everything is much more complicated, so today I will try to consider the main “stereotypical” misconceptions of novice traders that arose due to inaccuracies in the translation of foreign literature.

Let's start with the fact that FOREX (as a market) appeared more than 40 years ago, so at the first stage of its development it really represented a kind of “global exchanger”, on which banks bought and sold “cash” on their own behalf, or on behalf of “corporate » clients – this is the spot currency market.

It is no coincidence that I put the word “immediate” in quotes, since in the current environment, despite globalization and the development of telecommunications, banks often need several days to settle spot transactions. Therefore, after the transaction is completed, funds do not arrive in the accounts instantly, as is commonly believed, but after some time.

In this case, the spot currency market can be compared to an exchange operation between two users in some payment system. For example, one person has dollars in his wallet, and the other has rubles, they decide to exchange savings at the current rate. There will definitely be a delay in the translation, but in the end the purchase/sale transaction will be certified in a short time.

I repeat once again that this is only a conditional comparison presented in order to better understand the principle of calculations, but what should you pay attention to here?

• There is no leverage in the spot currency market, i.e. how many funds are in the account, so much can be transferred;
• the exchange is always real and carried out from account to account.

Spot currency market and DC work

Now let’s move on to answering the main question: is trading through a dealing center (DC) work on the “spot” or not? I would like to answer immediately unequivocally, but, alas, it will not be possible, since many Forex companies have two types of accounts:

1. “Ordinary”, in which the trader’s counterparty is the DC itself;
2. ECN accounts, transactions for which are transferred to liquidity providers.

In the first case, the actual purchase/sale of currency does not occur, since the dealer does not bring the transactions to the general market. Formally, of course, if we start from the assumption that the DC always acts as a counterparty for the trader, and does not “compact” the outcome of the entire set of clients’ virtual transactions, then such operations, with a big stretch, can be considered one of the “incarnations” of the spot currency market.

On ECN accounts, trading conditions are already closer to the interbank market, since the trader in the “glass” sees orders of system participants, and transactions are actually carried out instantly.

In any case, the differences between the interbank spot market and trading of currency pairs through DCs are not fundamental today, since large dealers do not manipulate quotes, and now they have also come under the regulation of the Bank of Russia (due to the adoption of a new law).

Therefore, stories about how trading in Russian dealing centers has nothing to do with the financial market will eventually go down in history as trading folklore, or more precisely, as legends and myths. Moreover, access to the “interbank” market starts from 100 thousand dollars, so the claims of “traders” with a capital of 100 - 1000 dollars that transactions are circulating inside the DC and are not withdrawn anywhere look strange.

The Forex market does not live by “spot” alone

At the very beginning of the article, I mentioned that “Forex” most often refers to transactions with immediate delivery, but in fact, the foreign exchange market tools also include futures and options on currencies, i.e. in other words, the derivatives market.

Unlike the spot currency market, in the forward market, delivery under a concluded contract is always shifted to the future. For example, when buying a euro futures contract at the current quote, a trader will receive the currency only after the contract expires, and no matter how much the euro exchange rate changes against the dollar, the obligations will be fulfilled at the same price at which the trader opened the position.

With the help of futures, you can eliminate the risk of losses from exchange rate fluctuations, but this operation is most often resorted to by companies operating in the export/import sector, and for traders such schemes do not make any practical sense, because exchange rate fluctuations are the “bread” of the speculator.

Options, like futures, are also used to hedge against unpredictable price fluctuations. If, when buying a pair, a stop loss is used to limit risks, which can be disrupted by a strong impulse, then when working with options, a fixed premium is paid.

In addition, there are also forward contracts, which in their economic essence are similar to futures and also absorb a significant volume of transactions from the spot currency market. Their main feature is the absence of a standard, i.e. The parties themselves determine the terms and volumes of currency supply.

Thus, the spot market is an integral part of FOREX, I draw your attention - a part, therefore for successful trading it is recommended to study the principles of pricing in the derivatives market.

In all markets (stock, foreign exchange, commodity) transactions are concluded that can be executed either immediately or after a certain time.

And on this basis (the time of actual delivery of securities, currency and goods), the market is divided into separate segments: futures (forward) and spot (cash).

It is not difficult to understand that in a fixed-term transaction, transactions are not implemented immediately, but after a certain “period”. What does "spot" mean? Spot from English - trade on site, from a warehouse.

The spot market is an excellent opportunity for assets (such as currencies or perishable goods) to be sold instantly and at current current prices.

Thus, Forex is the largest international spot foreign exchange market: the volume of spot trading here is significantly larger than the turnover of forward instruments.

Types of markets

In modern conditions, spot and derivatives markets have become widespread. At the beginning of 1994, the total value (calculated at par) of derivative financial assets on the derivatives market exceeded $12 trillion, which is twice the US GNP. These types of markets are closely related. The spot market determined the emergence of a futures market.

A spot market is a type of market that trades physical goods for immediate delivery. The derivatives market is a market for futures contracts, i.e. agreements between counterparties on the future delivery of assets in the form of material assets, goods, securities within a specified period on agreed terms.

The spot market involves hedgers and traders. Supply and demand are formed by goods that are not intended for storage. Hedgers who engage in transactions to sell or buy contracts can sell the commodity now or sell a forward contract and store the commodity.

Hedgers actually form a supply of contracts on the spot market, thereby insuring against possible losses when prices for certain goods fluctuate. Traders stock goods relative to the expected spot price.

The actions of traders are determined by the current and expected price of a slot on the derivatives market; the execution of derivatives contracts is carried out in the form of contracts:

1. forward,
2. futures,
3. optional.

A forward contract is an agreement between counterparties about the future delivery of the subject of the contract, which is concluded outside the exchange. The execution of the contract is carried out in accordance with these conditions within the prescribed time frame. The subject of the agreement can be various assets - goods, shares, bonds, currency, etc.

The terms of a forward contract usually contain a single fixed delivery date. This type of contract cannot be liquidated ahead of schedule by one of the parties to the offset transaction, except by carrying out the opposite transaction, when the seller can buy and the buyer can sell the contract.

A futures contract is an agreement for the future delivery of the subject of the contract. A futures contract differs from a forward contract in a number of features. A futures contract is concluded only on an exchange. The exchange itself develops its conditions. The subject of the contract can be tangible assets - gasoline, gold, wheat and financial instruments - currency, securities, stock indices.

The execution of futures contracts is guaranteed by the exchange's clearing house by collecting deposits from trading participants to open positions. Positions are closed by performing an offset transaction, after which the futures trading participant no longer bears obligations to execute contracts, but transfers them to a new counterparty.

Option contracts. An option is a two-way contract to transfer the right to buy or sell a specified underlying asset at a certain price at a certain time.

The contract involves two parties: the buyer of the option - the party acquiring the right to buy or sell the asset, and the seller - the party granting the right to deliver or accept the asset at the request of the buyer.

For the acquired right, the buyer of the option pays the seller some compensation, called a premium. In terms of expiration dates, options are divided into two types: American and European. American options can be exercised any day before the expiration date of the contract. European - only on the day of contract execution. Most of the contracts concluded in world practice are American options.

For the first time, the study of the essence of the derivatives market, the determination of the derivatives price and its ratio to the spot price was carried out by J. Keynes.

He found that for a manufacturer who is going to produce a product in the future, the main role is played by the immediate price. It allows the manufacturer to determine the scale of its operations in the future, avoiding price risk by selling goods for a period until it produces it.

Keynes justified the various relationships in which spot and forward prices can exist. He proved that if there is no excess inventory in the spot market, then the spot price exceeds the term price; if there is such an excess, the immediate price exceeds the spot price. In general, J. Keynes concluded that the derivatives market has a stabilizing effect on the financial position of subjects of a market economy.

Source: "textbook.news"

Spot and derivatives market

Each of the markets, classified according to the goods presented on them (stock, commodity and foreign exchange markets), can be divided into a spot market and a derivatives market:

A spot or cash market is a market for cash transactions that require immediate payment at the current price. That is, when buying, for example, a share or one barrel of oil on the spot market, the conclusion of a transaction and the “exchange” of the product (one share or one barrel of oil) for money occurs immediately:

The derivatives market (time market) is a collection of all types of transactions, the implementation of which is carried out after a certain period of time. That is, for example, concluding a futures contract implies the delivery of goods and payment of funds after a certain period of time.

The derivatives market is also called the derivatives market. Derivative financial instruments are financial contracts (or documents), the value of which depends (that is, is a derivative) on the value of other, underlying variables.

As a rule, these variables are the prices of various market assets. For example, futures or stock options are derivative securities whose value depends on the price of the stock, etc. However, derivative securities can be dependent on any number of variables, such as the price of pork, interest rates, stock index, ambient temperature, etc.

Thus, each of the markets discussed above can be easily divided into a spot section, where direct trading of assets is carried out, and a derivatives section, where derivatives on these assets are traded. In addition to different types of assets, financial markets may differ regarding the organization of the trading process, the mechanism for concluding transactions, etc.

Source: "fondovik.com"

The spot market is an instant execution of trades

It is no secret that when conducting transactions on any market, be it foreign exchange, commodity or exchange, contracts can be executed either immediately or after a certain time. Based on the time of contract execution (i.e., actual deliveries of goods and/or funds specified in the contract), markets can be divided into forward and spot.

In forward markets, the execution of transactions is delayed in time and can occur a week, a month, or even a year after conclusion.

Spot markets usually mean markets with instant execution of transactions, although this is not entirely true.

The fact is that in international trade (and Forex is an international, global market), mutual settlements often encounter certain delays associated with the peculiarities of the functioning of financial institutions in different countries, as well as with difficulties caused by the possible location of counterparties in different time zones.

A distinction is made between the date of conclusion of the transaction and the date of physical receipt of funds to the account of the counterparties. The last of them is called the value date.

On the spot market, transactions are carried out with a value date no later than the second business day after the day the contract was concluded. In this case, transactions are divided into:

• tod (short for today): when settlement occurs on the same day;
• tom (short for tomorrow): when settlement is made the next day after the transaction is concluded;
• spot: when the value date is the second business day after the transaction is concluded.

Thus, contracts with a value date on the second business day are called spot contracts. In turn, those contracts whose value date is more than 2 business days away from the date of the transaction are called forward.

As you know, current prices of goods (and in the case of Forex, current quotes of currency pairs) are often called spot (as opposed to forward or futures, i.e. prices for delivery after some specified time). However, even Tod, Tom and Spot prices for the same product (currency pair) may differ from each other.

But, firstly, the difference is, as a rule, very small. And, secondly, most transactions on the spot market occur according to the conditions and prices of Spot.

Therefore, it is the Spot price that is considered to be the current price of a product, security or currency pair. Of course, futures and options also play a role in the Forex market. And there are many traders in whose trading they occupy a significant share. But for the most part, the foreign exchange market is a spot market, since the turnover of transactions on spot terms is much higher than the volume of trading in forward foreign exchange instruments.

Source: "forex.ua"

Spot market: varieties and specifics

The spot market is an economic platform on which any assets (currency units, securities, raw materials) are bought and sold exclusively for cash, subject to the condition of prompt delivery.

All financial markets, regardless of their features, can be divided into two main types:

1. derivatives market,
2. spot market.

The characteristics of the first can be guessed by its name: it implies the completion of transactions agreed upon by the two parties within a certain compromise period.

The second type of trading platform - the spot market - is also commonly called cash. Its main specificity is that the transaction is agreed upon on the basis of the latest current value of the asset, which was fixed during the determination of the contractual terms.

At the same time, the value that may likely be established in the future upon provision of this asset and its possible changes are not taken into account.

Knowing all the nuances of the spot market is extremely necessary for any trader, because the vast majority of foreign exchange transactions occur precisely according to this principle. In fact, trading on Forex is spot sales in its purest form, because there the currency is traded based on the described mechanism.

The spot market is primarily characterized by the following features:

• The spot contract and confirmation of purchase or sale is concluded and paid within 2 working days of the week;
• The formation of the value of an asset is directly related to the relationship between supply and demand for it;
• The level of volatility significantly exceeds that of the derivatives market;
• There is no interest rate on the price of assets;
• Exchange rate quotes are fixed and unified;
• Many transactions are carried out using modern automated computer systems.

Similarities between spot market and derivatives market

Both the first and second options have a number of common properties, among which, first of all, it is worth highlighting their basing on fundamental economic principles. Both markets are guided by common pricing concepts and competition rules. Also, on a legislative level, they are regulated by the same regulations.

Both the derivatives and spot markets have a similar infrastructure base, use the same technological approaches and electronic global systems. However, a number of organizational similarities do not make them completely identical, which is due to the totality of their fundamental differences in trading.

Market differences

The derivatives market is characterized by the fact that it does not operate on any assets, but on the ownership of them and a set of obligations between partners. At the same time, very often during the preparation of a futures contract, not full ownership of the asset occurs, but only the right to own it at the end of the period specified in the contract.

The spot market provides for the functioning of exclusively real assets, which are immediately available for use. At the same time, traders in the derivatives market have the opportunity to use both futures contracts and options or other financial instruments.

If in the spot market all settlements are carried out instantly and in full, then in the fixed-term market they (as well as the provision of an asset) can be postponed for a certain time period.

Quite often, for financial security, the “guarantee” mechanism is used when drawing up contracts. Skilled traders are able to qualitatively combine the advantages of both markets and receive maximum privileges from this. The main thing is to learn how to timely select immediate or deferred trading operations.

Source: "everythingis-ok.ru"

What is the difference between the derivatives market and the spot market?

There are many markets and their classifications in the world. In the financial world, markets are usually divided into spot and derivatives:

1. The derivatives market is a collection of all types of transactions for which sales are carried out after a certain period.
2. The spot or cash market is a market for cash transactions.

Common features of spot and derivatives markets:

• Market relations are built on the general principles and laws of a market economy (laws of supply and demand, competition, principles of pricing).
• The spot and derivatives markets have a common infrastructure - a system of state, private and public institutions and technical means that serve the interests of subjects of market relations, ensure their effective interaction and regulate the movement of commodity and cash flows.
  Market infrastructure is distinguished:
  1. organizational and technical (exchanges and auctions, trading houses and chambers of commerce, holding and brokerage companies, associations of entrepreneurs and consumers, transport communications and operational communications),
  2. financial and credit (banks, stock and currency exchanges, insurance and investment companies),
  3. research (scientific institutes studying market problems, information consulting firms, audit organizations, special educational institutions).
• There is a relationship between the spot and derivatives markets.

  For the first time, the study of the essence of the derivatives market, the determination of the derivatives price and its ratio to the spot price was carried out by J. Keynes. He found that for a manufacturer who is going to produce a product in the future, the main role is played by the immediate price.

  It allows the manufacturer to determine the scale of its operations in the future, avoiding price risk by selling goods for a period until it produces it. Keynes justified the various relationships in which spot and forward prices can exist.
  

  He proved that if there is no excess inventory in the spot market, then the spot price exceeds the term price; if there is such an excess, the immediate price exceeds the spot price. In general, J. Keynes concluded that the derivatives market has a stabilizing effect on the financial position of subjects of a market economy.

• They perform the functions of self-regulation of production, a stimulating function, a regulatory function, and a function of democratization of economic life.
• The state regulates the activities of market participants through a system of legislation (Civil Code of the Russian Federation, Tax Code of the Russian Federation, etc.).

The differences between the spot and derivatives market are as follows:

1. spot and derivatives market - one might say a different type of economic activity;
2. the derivatives market is a set of transactions as a result of which not only real assets are sold and purchased, but also rights and obligations in relation to real assets;
3. the spot market is only cash, cash, foreign exchange transactions;
4. the derivatives market provides the opportunity to trade futures and options, which cannot be said about the spot market;
5. In settlement techniques, spot transactions are contrasted with forward transactions, where settlements are made immediately rather than deferred.

Source: "topknowledge.ru"

Cash market

Any financial market, regardless of whether it is a stock market or a foreign exchange market, can be divided into two separate segments: the derivatives market and the spot market. And if everything is more or less clear with the derivatives market, because... its specificity fully corresponds to its name, and all transactions carried out on it are not implemented immediately, but after a time specified by the parties.

Not everyone knows what the spot market is. Let's look at the difference between these types of markets and what the term "spot" means.

A spot market is a market in which all goods (currency, securities, raw materials, etc.) are bought and sold exclusively for cash and on the basis of immediate delivery.

The second name for the spot market is the cash market. The parties conduct transactions on it, guided by the market price of the asset established at the time of the transaction, and not by the one that will prevail in the market at the time of delivery. This detail is especially important for traders, primarily foreign exchange traders, which is why almost all spot markets work with it. And the largest spot foreign exchange market is, naturally, Forex.

Peculiarities

• Carrying out asset purchase/sale transactions and settlements thereon within a maximum of two business days.
• A significantly higher degree of asset volatility than in the derivatives market. This situation arises due to the fact that pricing on the spot market largely depends on the relationship between supply and demand for the asset.
• No interest rate on the value of the delivered asset.
• Fixed exchange rates for currencies and other assets.
• Carrying out most of the transactions electronically, with confirmation of transactions through advice notes (electronic notices).

Common features of the spot and futures markets

Market relations in both cases are based on the classical laws of a market economy. This is manifested in pricing principles, competition, etc. The state controls participants in both markets using the same documents and regulations. The general infrastructure of markets, which manifests itself in the same financial institutions and technical means serving market participants.

In principle, similar features of the derivatives and spot markets relate, for the most part, to organizational and technical issues that are not particularly interesting to us traders. It is much more important what their differences are, because based on them, the trader selects the optimal market for himself.

Differences

In the derivatives market, it is often not even the assets themselves that are sold and bought, but the rights and obligations of the parties in relation to them. That is, for example, when concluding a futures contract, you do not receive the asset that appears in it, but become the one who has rights to it after the expiration of the contract.

Various assets and trading instruments. For example, in the derivatives market you can work with the above-mentioned futures, options and others. There is no such thing on the spot market; only real assets are quoted there, which you immediately receive for your use.

In the derivatives market, not only the delivery of an asset is often delayed, but also the settlements on it. When concluding a contract to purchase an option, you do not pay its full value, but only contribute a portion—the “guarantee.” In the spot market, settlements are made immediately and in full.

Experienced traders combine both markets in their work, conducting both immediate and deferred operations. The main thing is that you can work and earn money in any type of market, if you have the desire.

Source: "investment-school.ru"

Spot Market

Spot Market - a stock, commodity or foreign exchange market where transactions are made in cash with an immediate change in ownership. In this case, the purchase or sale occurs at the market price relevant at the time of the transaction. Within the framework of the market, obligations by the parties must be fulfilled, as a rule, no later than the next business day from the beginning of the transaction.

The spot market is often referred to as the Cash Market or Physical Market. The subject of the transaction may also be perishable goods. An example of the need to use two business days to execute a transaction is the sale/purchase of goods such as grain, natural gas, precious metals, beef, etc.

Oil is considered a regular product that is sold on the Spot Market; sales are carried out at the current price, and delivery occurs later.

Mandatory characteristics of a product on the foreign exchange market are:

1. uniformity,
2. standardization.

For a better understanding, let's give an example of the foreign exchange (spot) market. This is the well-known Forex market. Implementation of the process of buying/selling one currency for another, when a trader opens a position on a certain currency pair.

The difference between futures trading and the foreign exchange market is that the value in the foreign exchange futures market is related to the price of holding the goods and subsequent price movements. Whereas in the spot market, prices are determined by current supply and demand.

The physical properties of goods are one of the factors that can change the price on the spot market, i.e. Do the goods deteriorate quickly? Those goods that have an unlimited shelf life (precious metals) show a price that reflects the future dynamics of value, and the price of perishable “trade items” (vegetables, fruits) depends on supply and demand.

Source: "techcapfx.ru"

Trading rules on the spot gold market

First, let's look at the concept of the term itself. The spot market (from the English Spot-Market) is a market in which special rules are established for concluding transactions between the seller and the buyer, something like modern exchange trading. The main feature is that the buyer acquires ownership of the goods immediately after concluding a transaction with the seller.

Features of goods on the spot market

The main feature of goods offered for sale on the spot market is their uniformity and uniformity. These are mainly stocks, oil, gold, bonds, etc. An interesting fact is that the speculation system is quite simple. As mentioned above, the prices at the time of the transaction are those that are relevant on the market at the moment.

By simple steps, you can choose a convenient time at which the price when delivering the goods is much lower than when selling, and make a good profit from this. The spot market is also characterized by its freedom of action for the client, which means that he can leave trading at any time.

In order to become a participant in trading on the spot market, you do not need to worry about the size of the price characteristic of the product; any amount is suitable for entering the exchange.

A striking example of the spot market is Forex.

The most significant example of an international spot market is Forex. All traders without exception traded on this exchange.

Why is Forex so attractive and what advantages does it have over its competitors:

• Ease of participation;
• Access 24 hours a day, 7 days a week. Due to the fact that transaction participants are located in different time zones, this provides access to the exchange around the clock;
• Wide selection of financial instruments. More than 100 types of currency pairs will be available to you, ranging from US dollars to Japanese yen;
• High liquidity;
• Internet trading;
• Absence of any intermediaries.

Thus, the spot Forex market ensures its leadership due to the huge volumes of foreign exchange transactions that occur throughout the globe.

Gold price in SR

The prices set on the spot market differ from those set by the Central Bank or Sberbank. It is also worth noting that the gold rate on the spot market reflects the most current economic situation.

In the chart below you can see the price of gold on the spot market, this is the cost in dollars per troy ounce:

Source: "goldinside.ru"

Spot gold market: current exchange rate and prices

Gold rules the world economy. Of course, there is also currency, oil and gas production, but this precious metal has a special place. The current price of this material is of great importance for the global economy. How is this cost determined? What markets are there? Spot market - what is it? How much does gold cost on the spot market?

About spot value - what is it?

The price of gold determined in the spot market is based on supply and demand from trading participants. This indicator, as a rule, does not differ much from those in other markets. It should be noted that it is now at approximately $1,290 per ounce. Of course, this figure is unstable. Trading takes place daily, and the price level changes virtually constantly.

About the market

Many people are interested not only in price, but also in what the spot market is like. This is a method of stock trading that is quite common today. When the transaction is completed, ownership rights are transferred instantly. Hence the constant dynamics of the exchange rate.

According to experts, today the price of gold on the spot market is stable. However, this situation can change at any time, for example, as a result of the fall of any significant currency, for example, the euro. Other factors also affect the price. For example, the situation in the real estate markets. The performance of the United States has a big impact.

Traders manage to carry out operations on the market quite successfully, which leads to increased trading, and therefore to a sharp change in the price of precious metals. According to analysts working in the market, the price of this precious metal signals the state of the economy and makes it possible to predict the new price of gold.

Perhaps the most common type of such market is Forex. This format for buying and selling currencies and gold is increasingly popular in our country.

Education prices

How is the gold rate determined on the spot market? What is spot value? If you ask this question to an economist or trader, then in response you can get information that this is the current delivery price or the cost of the last transaction with gold.

The difference between the spot price and the London Stock Exchange fixing level is determined by the constant fluctuation of the former. It is a reflection of wholesale transactions in “live” gold. Now the number of wholesale markets with real transactions in “real” metal is very small.

For example, L.B.M.A. Dealers participate in it. Data recording occurs twice a day. There is evidence that this exchange has some influence on the stock market.

And trading volumes on it are higher than the current supply of “live” gold. There was a period in history when any transactions in gold were stopped in the United States until 1974. But in London, trading continued all this time. Now, after the end of London trading, New York trading begins, where the price of gold continues to form.

Without going into details, it can be noted that during trading in New York there is a certain decrease in value, despite the supposed statistics. As a result, this caused mistrust among traders. After all, such actions should not be observed on a fair market. And this can only cause certain speculation and unrest among the participants.

Definition of a “fair” exchange rate

There is a certain formula that allows you to find out the “fair” price of the futures value. From everything we can conclude that the value of the precious metal formed on the spot market will follow after the month of closing of futures transactions.

As a result, it can be understood that the market for “real” gold does not set a price, but all retail transactions are based on a spot price that is not based on the supply of “real” metal.

Source: "zolotoigid.ru"

The spot market cannot be the main one

The Russian competitive electricity market is just emerging. However, it is already clear that the proposed model of a fully liberalized market may not attract investment into the industry.

One of the solutions should be the creation of a derivatives market with the underlying asset of electricity, which is confirmed by Western experience in reforming the industry, which, in our opinion, must be taken into account when developing a promising model of a fully competitive electricity market.

It is expected that as the electricity market develops and moves to the expected model of a fully competitive market, the free trade sector will completely replace the regulated sector and become the main platform for trading electricity.

However, in this case, the problem of commissioning new generating capacities will become more acute: the free trade sector of the wholesale market is not able to ensure the long-term investment of significant financial resources in the development of power plants. This problem is not covered in any way in documents devoted to the liberalization of electricity trade in Russia.

Let's consider options for solving various problems facing the electricity market, depending on the type of market.

Types of electricity market

In the electric power industry, according to the time principle, three types of markets can be distinguished. The current market is a market in which electricity trading is carried out in real time.

Its variety is the spot market, or market (from the English on the spot - “trading on site”, “from a warehouse”). This market is typical only for the electric power industry. The proposed fully competitive market model is essentially a spot market for electricity.

It is not completely competitive because its price is limited by the value established by the Federal Tariff Service.

Upon completion of the formation of the spot market (with the complete cessation of regulation of its maximum value), electricity producers will begin to offer their prices, which represent the dependence of marginal (incremental) prices (kopecks/kWh) on operating power (hourly electricity generation).

The price of electricity on the current market at each hour of the day will be aligned according to the ratio of the supply curves of producers and consumer demand.

But a fully liberalized electricity market has two important shortcomings that will ultimately make it impossible to use it for fair, competitive trading of electricity:

1. The equilibrium price of supply and demand on the spot market is always the price of the power plant that closes the balance of electricity (in the regulated sector of the wholesale market, the price for consumers is the average for electricity producers).
2. The ability of electricity producers to use unspoken collusion to inflate the price of electricity at the closing power plant. Thus, electricity consumers are completely excluded from the price formation process.
3. The current electricity market cannot provide price signals for the development of generating capacity due to the short-term nature of these signals.

Therefore, trading electricity only through the spot market cannot ensure fair competition. For the same reason, the problem of developing generating capacities and creating sufficient reserves will become more acute over time.

The short-term electricity market is a market where electricity producers enter with their proposals for electricity prices calculated on the basis of annual costs (average or marginal) and profits depending on the annual electricity production.

In this case, the equilibrium price for electricity is established by the ratio of the planned average or marginal prices of electricity producers and consumers' expenses for its purchase, calculated depending on the annual production and consumption of energy. In the short-term market, a constant equilibrium price of the product or its weighted average value for the settlement period is used.

Short-term producer prices per unit of product are set depending on the annual production volume of a given product at a fixed producer capacity.

It is on the basis of the average annual costs and profits planned by electricity producers (AO-Energo, individual power plants-subjects of the wholesale market) that state regulatory bodies (FTS and Regional Energy Commissions of the constituent entities of the Russian Federation) currently set electricity sales prices for electricity producers on the wholesale and retail markets .

This is the main difference between the price regulated by the state (set as the average price for the billing period) and the price of a competitive market without the participation of state regulation (set at the marginal level depending on the effective demand of consumers).

The producer's profit or loss in a competitive market is determined as the difference between the equilibrium (marginal) price and the producer's average costs. Thus, if the tariff is not regulated, then the electricity producer on the spot market receives a monopoly profit. Providing this profit falls entirely on the consumer.

In the electric power industry, the short-term market can be implemented in the form of forward (bilateral contracts between the producer and the consumer for the period of future delivery on pre-agreed conditions) and futures (mutual transfer of rights and obligations when working with standard contracts for the supply of electricity) transactions.

And while bilateral purchase and sale agreements in the free trade sector are already beginning to be concluded, futures contracts are not even being discussed now. The current electricity market also does not provide price signals for capacity development. The long-term electricity market suggests the possibility of expanding electricity production.

In this case, the capacity of producers is not fixed, and producers make their long-term proposals at prices (average or marginal).

The long-term price in such a market is determined as the equilibrium price at the intersection of the long-term supply and demand curves. The long-term market considers a period of 10-15 years or more during which new power plants can be built and pay for themselves.

Therefore, this type of market should be taken into account when analyzing the development of generating capacities of manufacturers in a competitive market, while the spot market reflects only the current situation with operating capacities, and the short-term market works with already operating power plants.

To ensure the construction of new power plants, contracts must be concluded for a long period (10-20 years) and require higher electricity prices to ensure a return on investment.

However, at present, JSC energos that are part of RAO UES of Russia cannot afford to enter into long-term contracts, since they are undergoing complete restructuring, and also cannot set long-term tariffs, since the organization of a long-term electricity market is not stipulated in laws and current regulations government on reforming the Russian electric power industry and the prospects for its existence are not clear.

Experience using the spot market in the UK

When developing a plan for reforming the Russian electric power industry, the experience of creating an electricity market in the UK was used. Unfortunately, the experience of liberalization of the electric power industry in the period before 2001 was taken into account, which turned out to be negative.

Therefore, in 2001, a new system for organizing the electricity market NETA (New Electricity Trading Arrangement) was introduced in the UK, according to which the procedure for trading electricity has fundamentally changed.

Let us consider the process of formation of the electricity market in the UK in more detail. Before the reforms began, the management of the electric power industry in the UK, as in Russia, was carried out according to a strict vertical principle. The industry, being state-owned, consisted of the central electricity department (CEU) and 12 territorial energy departments (TEU).

CEU was a monopolist and was responsible for the production of electricity and its transmission through high voltage networks. Territorial departments bought electricity from the central office at a fixed price and ensured the distribution of electricity on their territory via low-voltage networks. The economic activities of CEU and TEU were entirely regulated by the state.

Electricity tariffs for end consumers were based on the cost of production, transmission and distribution of electricity with a regulated profit margin.

Privatization of the British electricity sector began in 1989 with the aim of improving the efficiency of electricity supply by creating competition among electricity producers.

The Central Electricity Authority was divided into the following organizations:

• two generating companies - National Power and Power Gen - began to provide electricity production from fossil fuel power plants;
• the state-owned Nuclear Electric company assumed responsibility for generating electricity at the nuclear power plant;
• The national network company National Grid began to provide services for the transmission of electricity over high-voltage networks.

National Grid became the joint authority of all TEUs. Tariffs for services for the transmission of electricity through high-voltage electrical networks were determined, as before, by the state, and regulation of electricity transmission activities was carried out by the Department of Electricity Regulation of the UK Ministry of Economic Affairs.

Territorial energy departments were also privatized and retained their geographical boundaries of responsibility for the supply of electricity to consumers. Now 12 private distribution companies have begun distributing electricity through low-voltage networks and supplying it to consumers.

First, a law was adopted on the division of production, distribution and sales of electricity into separate types of activities, and a little later - a law on the liberalization of public services. The monopoly on marketing activities was also broken. Many sales companies have been created and now compete with each other.

However, vertically integrated companies soon began to emerge spontaneously, since the consolidation of individual activities in a single company saved money and increased the reliability and controllability of electricity supply.

Thus, generating companies began to buy distribution networks and sales organizations, and distribution companies began to build their own power plants.

In 1991, the generating companies National Power and Power Gen were sold. Thus, thermal energy was privatized, while nuclear energy (Nuclear Electric) remained in state ownership. The state has stopped regulating tariffs for electricity production.

All electricity producers had to sell their product to the wholesale market (pool) at the pool purchase price set by the market, which was determined every half hour and on the basis of which settlements with electricity producers were made.

The selection of electricity suppliers for the wholesale market was carried out in the following order:

1. The market operator selected generating companies in order of increasing their stated prices for electricity, i.e., applications for the supply of electricity at the lowest prices were accepted first.
2. Lastly, an application was accepted from the supplier who offered the minimum price for closing the balance of electricity and was able to allocate capacity to cover the increase in electricity consumption.
3. At the same time, this price is the maximum of all those already selected by the market operator (closing price of electricity).

After several years of operation of the market, the independent regulator (Ofgem) concluded that operating through the pool is difficult: power plants, taking advantage of the fact that the purchase price of the pool is based on closing costs, dictate the price of electricity, and consumers are not able to influence pricing.

In an effort to get rid of the dictates of electricity producers, the independent regulator developed the NETA project. Within a few years, from three generating companies - National Power, Power Gen and Nuclear Electric - 25 generating companies arose, each independently.

Nuclear energy is currently represented by two generating companies, one of which is private and the second is state-owned. The forward electricity market has become the main one in the UK, in which bilateral contracts for the supply of electricity for a period of up to 10 years are concluded directly or through an intermediary (broker).

Trading companies (traders) provide intermediary services in concluding contracts between consumers and suppliers, while insuring risks (when the pool existed, risks were not insured). Long-term contracts are split into smaller ones over time and as necessary for their physical execution, ultimately breaking into half-hour intervals and sold through the spot market without announcing the price of electricity.

Thus, the spot market ceased to form the price of electricity and remained as an auxiliary market for electricity imbalances (deviation market).

Participation in the spot market can also be taken by those consumers who, for some reason, have not concluded bilateral agreements for the purchase of electricity, but have entrusted this problem to the pool operator. In this case, the price of electricity for them is determined by the system operator based on the results of the spot market. Electricity trading also began to be carried out on the futures (short-term) market.

The exchange operates with futures transactions, the volume of electricity sales through which is only 5%, and 95% of electricity is sold under bilateral agreements (forward contracts). The market share of deviations is quite insignificant.

Even with a well-organized electricity market, there will always be two types of trading systems: electricity trading under contracts between producers and buyers (forward and futures contracts) and trading through an association of wholesale market entities (trading on the spot market through a pool).

The transition to the first type of trading systems is technically impossible, since there will always be an imbalance of electricity that must be distributed by the market operator (deviation market). However, the deviation market, which operates on the spot principle, is only auxiliary.

In the case of trading electricity under contracts, the association (pool) operator evaluates only the technical feasibility of already concluded contracts (power line capacity, technical restrictions on loading power plants, etc.) and does not know the price of electricity.

When working in the deviation market, the operator carries out economic distribution of the load in order of increasing bid prices from electricity producers who have previously declared their participation in covering imbalances.

Thus, the electricity imbalance is closed by the pool system operator using pre-ordered power plants. After trading electricity solely through the spot pool market proved ineffective, an electricity exchange was created in the UK to sell trading licenses and bear the costs of trading.

Moreover, the pool system operator did not participate in its creation. The exchange operates generation and sales, as well as financial companies that buy electricity for their clients. These include National Grid, which purchases electricity for its needs.

Currently there are four exchanges and a number of subcontractors. They operate continuously, on the same principle as other commodity exchanges. Peak and base load contracts are traded separately: the first - from 7:00 to 19:00, except Saturday and Sunday, spot - in independent mode.

The mechanism of the exchange is as follows:

• At the first stage, the futures market operates.
• Two days before the start of the regime, the spot market opens, where spot contracts are concluded.
• 3.5 hours before the start of the regime, and the agent collects already concluded contracts. At the same time, clearing (settlement) operations are performed.
• The operator and National Grid then execute the regime.

In the UK, the system operator and the high-voltage electrical networks (National Grid) are united, as they control and execute the regime set by the system operator.

The latter’s task is to ensure that the balance is maintained when maintaining the regime and to fulfill contractual relations, i.e., he does not bear any special responsibility.

There is no separate law on the system operator; all principles of its operation are specified in the license for this type of activity. Ofgem regulates tariffs for the transmission of electricity through networks, which are reviewed once every 4-5 years. Central investments are not included in the tariff, since the tariff is no longer regulated.

The need to create a new trading platform

The experience of the UK electricity market shows that it is now advisable to move on a larger scale to bilateral agreements between producers and consumers for several years in advance and to prepare a new platform for trading electricity futures contracts, on which trading participants who have not found their counterparties can enter into supply transactions electricity in the future.

In the territory where the wholesale market rules apply, the potential for trading volume is almost exhausted, since the majority of large consumers and electricity producers are already participating in them.

Currently, the growth of trading volumes in the free trade sector is hampered by:

1. firstly, the existence of cross-subsidization: large industrial consumers are forced to buy electricity on the retail market at higher tariffs, thereby compensating for lower tariffs for the population.
2. Secondly, JSC-energos, having a monopoly on energy supply in the territory of the corresponding constituent entity of the Russian Federation, do not allow other electricity producers to serve their consumers and load their own, albeit uneconomical, power plants to the maximum.

Dividing the activities of regional energos into separate types (generation, distribution and sales) and creating generating companies that can compete with each other should solve this problem. Therefore, the negotiations between NP ATS and the Moscow Interbank Currency Exchange (MICEX) and the Russian Trading System (RTS) on the creation of a new platform for joint trading in electricity futures contracts should be assessed positively.

After the end of government regulation in 2007-2008. The free trade sector, built on the principle of a spot market, may face the problem of a sharp increase in tariffs due to their formation on the principle of the price of the closing power plant.

Timely and large-scale development of the sector of bilateral agreements and futures transactions will help avoid these negative consequences. At the same time, it is necessary to solve the problem of developing the generating capacity of power plants and maintaining the necessary reserves by creating a market for long-term contracts.

Greetings! I think it's time to move on to studying the spot market, which I mentioned in the last article. Let's figure out what kind of beast the spot market is, how it works and how it is useful. I will certainly explain with a specific example how spot transactions are carried out. Well, let's get started!

In one of the articles I already mentioned that the markets where assets are traded are divided into two categories:

• urgent;
• spot

Let's take a closer look at them.

Urgent

The derivatives market does not mean fast. It is so named from the word “deadline”, and this means that transactions on it are concluded with a deferred deadline. This is convenient when the buyer needs to fix the price and protect himself from its increase, and the seller needs to receive a guarantee for the sale of goods.

However, at present, the futures market is speculative, because traders have realized that with deferred deliveries, assets may not be taken at all, but luxury opportunities open up for buying and selling derivative assets, called derivatives. Now you don’t even have to have an asset, you just need to make a deposit.

Spot

The spot market is the most real one. Transactions on it are concluded specifically for the purpose of acquiring assets and with short payment terms - from instant transfer of money to two days.

To understand what a spot market is, it's worth starting by looking at the mechanism of a spot transaction.

What is a spot trade

It is called a spot contract (from the English spot - “on the spot”).

First, let’s talk about what the word “spot” means. This is the customary name for the form of settlement in transactions where the result is paid immediately. No delays, price agreements or additional agreements. Received the goods - paid the money. The price at which the transaction takes place is called the spot price. I believe there is no ambiguity left on the topic of what the spot price is. This is the current value of the asset in the market.

Accordingly, when using a spot transaction, the commodity (aka asset) must be in stock, and this feature distinguishes it from derivatives market contracts. Although it all depends on the type of asset. For example, in foreign exchange transactions there is also speculation; purchased currency is often immediately sold. Since in the age of high technology, transactions and payments occur electronically, the asset sometimes does not have time to be in the hands of the buyer.

Spot prices are an indicator of the situation on the trading floor; therefore, participants not only in the spot market, but also in the futures market, are guided by them.

Types of transactions - the difference between them

Although spot transactions are supposed to be paid instantly, there are types that allow you to defer payment. Then the date on which the money for the transaction is transferred is called the value date.

The following payment options are possible:

1. TOD. From the English “today” - today. Payment is made within the day of the transaction.

1. TOM. From the English “tomorrow” - tomorrow. Payment is scheduled for the day following the transaction.

1. SPT. This type is also called a spot transaction or T+2, which means payment two business days after the conclusion of the contract.

To understand, TOD is cheaper than TOM, which, in turn, is cheaper than SPT. The difference between them is that each subsequent one adds to the value of the previous one the size of the key rate, divided by the number of days in the year.

For the same reason, futures are more expensive than spot transactions.

Features of trading on the spot market

You probably already guessed that spot trading platforms are speculative. Therefore, for work, be prepared to take huge risks.

Contracts in the spot market are either deliverable (when the transaction ends with the delivery of a real asset) or non-deliverable (in which case the transaction ends with settlement and the asset does not become the property of the buyer). For example, trading on the foreign exchange spot market is often non-deliverable, and this is understandable - otherwise brokers would suffer losses, but this is how they make money on spreads.

How does the deal work?

I am keeping my promise - I will give an example of a spot transaction for a better understanding of what it is. Let’s say selling currency through the currency section of the MICEX exchange, and we will use the TOD and TOM types to see how you can make money on them.

So, we want to buy $1000 - 1 lot. We submit a purchase order (currency spot) - it is better if it is TOD as a fast and also cheap option. Immediately after the execution of the contract, we become the owners of the specified amount of currency in the account. It can be withdrawn to a current account and used for its intended purpose.

However, there is a second option that is more often used in the spot market. Currency can be resold for a profit. To do this, we leave the currency on the trading account and sell using TOM. After the transaction is completed, all that remains is to wait until the next day on the exchange, when TOM turns into TOD and the money falls into the account, and withdraw the resulting profit with a clear conscience (if there is any, of course).

Advantages and disadvantages

Pros of the spot market:

1. Cheaper than urgent.
2. It is volatile and provides an opportunity for speculators to make good money.
3. Thanks to the instant execution of contracts, it has high liquidity.

The disadvantages of the spot include:

1. Large leverage, which increases risk.
2. Price “slippage” at peak volatility, which can bring a large loss to the trader.
3. The market is not regulated by the state, the risks are on the shoulders of the trader, may the reader allow me this little pun.

Spot Forex

Almost all Forex is spot. Even when a trader places a so-called pending order (an order to buy/sell at a certain price), it is executed immediately as soon as the price reaches it.

Forex also uses the spot rate, the meaning of which is that the price of one country's currency is expressed in the monetary units of another. Spot rates allow traders to trade quite exotic types of currencies.

The big advantage of working on spot for a Forex trader is the ability to enter into transactions both to buy and sell an asset. This creates more options for speculating on price movements. In Forex, it is usually customary to use huge leverage (for example, 1:400), but at the same time, be aware that the risk of losing your deposit increases exponentially.

Additionally, I advise you to watch this “ancient” video:

Differences from swap

Swap transactions are carried out if the trader does not close positions within a day, but holds them for several days. Then, during the so-called transition through the night by the broker, they are carried out. The essence of the operation is this: the current spot is sold and immediately bought again. The difference for a trader with this double procedure can be either positive or negative.

Well, now the spot market has become closer, isn’t it? Let's summarize.

Conclusion

The spot market is not a place for speculation. However, investors began to actively use both markets to hedge (balance) risks. For example, the same person can buy shares on the spot market and at the same time enter into a forward contract for them.

The entire market is guided by spot prices, so when working with any type of asset, they are monitored on a regular basis.

See you again and don’t forget to subscribe to my blog - there is a lot of interesting and useful information ahead!