Understanding Spot and Futures TradingSpot trading and futures trading are two fundamental strategies in the financial markets, each offering distinct opportunities and risks.Spot trading involves the immediate exchange of financial instruments, such as stocks, commodities, or cryptocurrencies, at the current market price. In this type of trade, buyers and sellers agree to the transaction on the spot, hence the name. The price is determined by supply and demand, and once the trade is executed, the asset is delivered instantly or within a short period. Spot trading is straightforward and appeals to those who prefer to own the underlying asset immediately.Futures trading, on the other hand, involves contracts that obligate the buyer to purchase, or the seller to sell, a specific asset at a predetermined price at a future date. Futures contracts are commonly used for hedging or speculation. Unlike spot trading, the actual exchange of the asset occurs at the contract's expiration. This allows traders to bet on the future direction of an assetâs price without the need to own it.Both trading methods offer unique advantages, with spot trading providing immediate ownership and futures trading offering leverage and risk management tools.
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