Spot trading is one of the most popular ways to trade on financial markets. The spot market for stocks, forex, cryptocurrencies and commodities have a daily turnover of more than $6 trillion each.

In this article we are going to get acquainted with this trading style and its features. 

What is spot trading? 

The definition of a spot trade is the purchase or sale for instant delivery on specific dates. It means, you are able to exchange your assets at any time as opposed to non-spot trades where there are usually some kind of agreements that must be made before they happen. It can be considered as  the fastest way to trade in foreign currencies, crypto, commodities or other trading instruments.

The spot price of an asset is the value at which it can be bought or sold instantly. It will fluctuate throughout the day as demand and supply dictate its changing value. Note that if a certain asset is desirable, the sellers will agree to pay a high price no matter what.

How does spot trading work?

Spot trading is a good way to invest your money. It is easy to understand and you can use it even if you are a beginner trader.

Let’s divide the spot trading process in steps to understand how it works. 

  1. Firstly, you need to decide what instrument you want to trade with. It can be crypto, foreign currency, gold, etc. 
  2. Then you need to choose a broker and a trading platform. Check legit forex brokers in Nigeria as an example of how reliable brokers should be. 
  3. After picking both a broker and a trading platform to trade on, you place your order for at what price and quantity you will sell your trading instrument. If someone agrees, they will accept your offer and when the deal is being made.
  4. The deal is carried out in 2 days usually. This means that if the value of an asset increases during this time, the profit you will have will be increased as well.

Advantages and disadvantages of spot trading

Let’s go through some pros and cons of this trading style:

Pros

low risk levelspot trading is a great option for beginners because you can’t lose more than your initial investment.

rapid deals – spot trading for stocks, forex and commodities such as gold or metals take up to two days before settlement which is a perfect mark. And with cryptocurrencies the deal is made immediately. 

transparency – when spot trading on an exchange, prices are typically public. This means you do not need to speculate since it is easier for beginners because their funds won’t be invested in anticipation that price will rise over time. 

Cons

simplicity – there are less strategic advantages because spot trading is very simple.

volatility – some markets, like currency, are volatile and it is important to study the market carefully. Position opening or closing at just the right time will ensure you make maximum profit from your investment.

Conclusion

The article introduced you with the definition of spot trading, how it works and what pros and cons it has. Spot trading is a great way to get started in the markets. It provides an opportunity for profits, and because it is so simple there is not much that can go wrong with transactions! If you are a trader from the US, see the list of nfa forex brokers to get more details on US regulated brokers.

Disclaimer

Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.