What Is Spot Trading?

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Spot trading involves the direct trading of financial instruments and assets such as stocks and bonds. In the virtual asset domain, spot trading refers to the buying or selling of virtual assets at the current market price (or "spot price"), with the intention of taking immediate delivery of the underlying assets.

Unlike derivative trading, you need to own the underlying asset to place a buy or sell order in the spot market. Spot trading covers all tradable commodities. It involves the trading of commodities itself, and most of the transactions in our daily life could be characterized as spot transactions. Spot trading emphasizes the payment of goods on delivery, and the end of a trading relationship upon the delivery of goods and payment. Its purpose is to allow both parties to acquire or transfer ownership of the goods in a relatively short time.

For example, you are a buyer offering US$10,000 to buy 1 BTC. If a seller is willing to take your offer at this price, the transaction will be closed immediately. The system will transfer US$10,000 from your account to pay the seller, and transfer 1 BTC from the seller's account to your account.

From the above explanation, we can easily see how the two parties involved in spot trading can only trade with the current assets on hand. Thus, leverage and margin are not applicable to spot trading.

One feature of spot market trading is that investors are trading physical assets rather than futures contracts. In addition, investors have direct ownership of virtual assets. These two features give traders a greater sense of security and make the investment process easier.

Another feature of spot trading is that it is more flexible and convenient, as the trade is not limited by time, space and counterpart. Moreover, the quick delivery of goods after receiving the payment makes the trading process convenient. Online spot commodity trading also operates on the same principle. Investors not only can hold their assets as long (or as short) as they wish, but they can also buy or sell their assets anytime.