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What is the difference between spot and future market

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Posted by : nifm
5 January, 2017, 1:24 PM
If you are a regular listener of CNBC / Zee Business or any business News then it is possible that you may hear this terminology SPOT and FUTURE Trading. Every trader should know the basic terminology of share market. This will help you in your trading style.   SPOT MARKET: Spot market is also known as cash market. The spot rate of a currency, commodity or security is the quote given for a transaction’s immediate settlement. The spot market is 24 hours market available for trading. If you wanted to buy copper or rice today, you would pay the spot price.   For example: Mr. Amber Gupta wants to buy gold and decides to purchase 15 grams each from the Spot market. In the spot price for 1 gram gold is Rs 2,750 then he has to pay Rs 27,500 for 10 grams in spot trade and takes delivery of it. The price will settlement at the point of trade and at that moment they exchange currencies and asset or within a short period of time, the trader will pay the amount.   FUTURE MARKET: In the futures market, the price is settled when the contract is signed and the currencies are exchanged. In the spot forex, the price is determined at the point of trade, and the physical exchange of the currencies takes place at that moment or within a short period of time. Although, many futures traders tend to close out their positions before the contract expires. In financial terms, a futures market is a standardized contract between two parties where 2 traders buy and sell an asset at a specified time in the future for a price agreed today.   There are two kinds of traders in futures markets: speculators and hedgers.   Hedger: hedging is a technique to reduce the risk. To protect a portfolio most of the traders hedge their position against the future market. As you know the future market is highly volatile.   Speculators: Speculator’ who is thinking about an asset that it will fall or rise in coming month. In that case, he simply trades in the future market with risk.   Thanks for reading this article. NIFM is trying to share some financial terms with you. For detail join NIFM-stock market course. Call 9910300590, www.nifm.in

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