What does the term 'spot market' refer to?

The term 'spot market' refers specifically to a market where financial instruments or commodities are traded for immediate delivery and settlement. Transactions in the spot market are executed "on the spot," meaning that the buyer pays for the commodity, and the seller delivers it right away, typically within a day or two. This characteristic distinguishes spot markets from futures markets, where delivery occurs at a later date.

In the context of commodities, spot markets provide a platform for participants to buy and sell physical goods such as crude oil, metals, and agricultural products for immediate consumption or use. The pricing in spot markets is often influenced by current supply and demand dynamics, making it a reflection of the prevailing market conditions.

While other types of markets serve different functions, such as futures markets for contracts aimed at future delivery, the defining feature of a spot market is the immediacy of the transaction. This understanding is crucial for anyone studying commodity regulation and trading dynamics.