Who this entry is for — Readers who need to distinguish the timing of an exchange from what they hold, the trading venue and the counterparty.
A spot or cash transaction agrees the exchange of an asset, security or currency with settlement under the current convention of that market. “Spot” primarily describes when and how the exchange settles: it does not identify a single instrument and does not automatically mean physical ownership.
In plain language — Spot means “prompt,” not “guaranteed ownership.” To understand what you receive, examine the instrument, settlement rules, custody, venue and counterparty.
Four different cases
- A cash purchase of a stock may confer a position in the security under the applicable issuance, registration and custody rules.
- In wholesale Forex, a spot transaction exchanges two currencies with a settlement date established by the convention for that pair.
- A retail “rolling spot FX” account may instead create OTC exposure to the dealer, with margin and financing: the provider's terms are decisive.
- A spot commodity transaction may entail physical delivery, documents of title or cash settlement as provided by the contract.
All four cases may use the word “spot,” but they do not confer the same rights.
Spot vs derivative
| Dimension | Spot | Derivative |
|---|---|---|
| Timing | prompt settlement under market convention | future, conditional or difference-based performance |
| What you hold | depends on the asset and custody structure | a contract with its own rights and obligations |
| Expiry | the transaction settles; the asset may remain held | may have an expiry, exercise or contractual term |
| Venue | exchange, platform or OTC | exchange or OTC, depending on the contract |
| Short | depends on borrowing, availability and market rules | depends on the contract, margin and applicable limits |
The correct distinction is not “spot = real, derivative = fake,” but underlying asset or exchange versus derivative right or contract.
Venue, intermediary and counterparty
An exchange is a venue with admission and trading rules; that does not make it the economic counterparty to every order. The intermediary receives or executes the mandate, the custodian records assets, a central counterparty may interpose itself in clearing, and the issuer retains its own obligations. In an OTC relationship, by contrast, the dealer may be the direct counterparty.
The Financial instruments and contract types entry separates these roles.
Spot price, basis and execution
The spot price is not a universal number: it depends on the asset, quality, location, currency, quantity, time and venue. A future, CFD or ETP may use that market as a reference without replicating its price and execution exactly. Differences in funding, delivery, expiry, liquidity and spread produce different basis and tracking.
Before trading, verify:
- which instrument appears in the contract or account statement;
- which settlement date and mechanism apply;
- whether you receive an asset, a currency balance or only a cash difference;
- who the intermediary, custodian, issuer and counterparty are;
- which margin, financing, spread and commissions may apply.
Sources
- Bank for International Settlements, OTC foreign exchange turnover in April 2025 — spot, outright forward, FX swap, currency swap and OTC option segments.
- U.S. Commodity Futures Trading Commission, Eight Things You Should Know Before Trading Forex — OTC relationship with the dealer, margin, financing and retail costs.
- Banca d'Italia, L'economia per tutti, Cos'è la borsa? — the function of an exchange and the role of intermediaries.
- European Securities and Markets Authority, MiFID II, Article 4 — Definitions — EU definitions of venue, regulated market, MTF and OTF.