Spot trading is the direct purchase or selling of assets like stocks, forex or cryptocurrencies. These transactions occur immediately in the spot market. A spot market is a financial market which is open to the general public where such assets can be traded instantly. There are varying types of spot markets. These range from over-the-counter (OTC) trades and also in third-party forms such as exchange platforms that facilitate trading.
Spot traders usually attempt to make profits in spot markets by purchasing assets and hoping they rise in value. They will eventually sell these for a profit when the prices of their assets rise. In addition, these traders are able to short the market which comes from selling assets and repurchasing more when the prices decrease.
The current market price of assets is known as the spot price. By utilizing a market order, buyers can sell or buy assets on the spot market at the given spot price. It has to be noted that the spot price can change as the order executes. In addition, there is a possibility that there are insufficient volume of assets for the buyer’s order. For example, if a buyer’s order is 5 BTC at the spot price but there are only 2 available, the remaining 3 BTC will be filled with assets at a different price. In contrast, OTC trades provide a fixed amount and price when trading from another party without an order book.
Depending on the assets, delivery of these orders are usually immediate or within two transaction days. Cryptocurrency exchanges operate 24/7 and allow for immediate trades as compared to traditional methods.