Spot Market Investing

Spot market investing deals with commodities and securities, where goods are sold and then delivered within a set amount of time. The contracts sold on the spot market are immediately effective; the market is also called the physical or the cash market. Purchases made on the spot market are settled in cash at the time of the sale, not the delivery time. For instance, crude oil is sold on the spot market at the then-current price and actually delivered later.

The commodities traded on the spot market are basic goods that are interchangeable with others of like kind. Some examples are beef, electricity, gold, grain, natural gas and silver. Technology can be considered a commodity as well; cell phone minutes and Internet bandwidth have entered the market.

The Forex spot market is huge; in the Forex market, one nation's currency is exchanged for another's. Investors operate by selecting a pair of currencies. A commonly traded pair is the British pound and the US dollar; if the pound gains against the dollar, investors buy, and if it loses ground, they sell. The Forex spot market is very liquid, and investors can enter and exit at will.

Spot market investing differs from investing in futures because the futures market prices are affected by storage costs and ordinary fluctuations. With the spot market, prices are affected by supply and demand, making them more volatile. Another factor affecting prices on the spot market is the perishability of the goods. Commodities like silver and gold sell at a price that reflects future movements, and perishable commodities like fruits and grain are more likely to be affected by the law of supply and demand.