Spot Contract

A spot contract is an agreement to buy or sell a financial asset, commodity, or currency at the current spot price, with immediate settlement. These contracts are used when traders or investors want to transact at the current market price without waiting for future price movements. Spot contracts typically settle within two business days, depending on the asset, making them ideal for traders looking for quick transactions.

Example

A foreign exchange trader enters into a spot contract to buy euros at the current exchange rate for immediate delivery.

Key points

• An agreement to buy or sell an asset at the current spot price.

• Settlement typically occurs within two business days.

• Used for immediate transactions, unlike futures contracts.

Quick Answers to Curious Questions

Why do traders use spot contracts instead of futures contracts?

Spot contracts allow for immediate transactions, making them ideal for traders who need to lock in current prices without waiting for future movements.