Spot market and futures market are common trading forms in the financial market, they have obvious differences in trading methods, risk characteristics and participants, but at the same time there is a certain connection and mutual influence. This paper will discuss the difference and relation between spot market and futures market.
Spot market
A spot market is a market in which physical commodities or financial assets are delivered immediately at the time of trading and settled instantly. In the spot market, buyers and sellers trade by means of cash or electronic payment, and the transaction price is determined by supply and demand.
Futures market
A futures market is a financial market in which the buyer and seller agree to deliver a certain amount of a subject matter at a fixed price on a specific date in the future. The futures market trades not for immediate delivery, but for delivery at a specific date in the future as agreed in the contract.
Distinction and connection
1. Who to trade with
The spot market deals with physical commodities or financial assets, such as stocks and commodities. The futures market deals with futures contracts, which represent the right or obligation to deliver the subject matter at a certain point in the future.
2. Transaction method
In the spot market, the transaction is carried out immediately, the buyer and the seller can directly trade in the market, the transaction price is determined by the market supply and demand relationship; In the futures market, trading is carried out through futures contracts, buyers and sellers trade through the exchange, and the trading price is determined by the price of the futures contract.
3. Risk characteristics
The risk of trading in the spot market is relatively low because the trading is carried out in real time and the trading price is relatively stable. Trading in the futures market is riskier because the trade is made at a certain point in the future, and market fluctuations can lead to losses for the counterparty.
4. Participants
Participants in the spot market include producers, consumers, middlemen, etc., who buy and sell commodities or assets through the spot market; The participants of the futures market include investors and hedge traders, who carry out risk management and investment through the futures market.
There are obvious differences between spot market and futures market in trading objects, trading methods, risk characteristics and participants, but there are also certain connections and mutual influences between them. The interaction and development of spot market and futures market has promoted the healthy development of financial market, provided market participants with diversified investment and risk management tools, and promoted economic development and prosperity.