Spot Trading

Spot trading refers to transactions which are executed and settled instantly. Spot trading strategies can be carried out on stocks, forex, cryptos and commodities such as gold. FX spot trading is the largest market in the world with a daily trading volume of more than $6 trillion.

Get started with our guide to spot trading for beginners, which includes investing tips and strategy considerations. We have also compiled a list of the best spot trading brokers in 2022.

Best Spot Trading Brokers

  1. OANDA offers 70 forex pairs with two competitive pricing models and a substantial welcome deposit bonus

    OANDA Corporation is regulated by the CFTC/NFA. OANDA is a member Firm of the NFA (Member ID: 0325821). CFDs are not available to residents in the United States.

    Instruments
    Forex
    Regulator
    CFTC, NFA
    Platforms
    MT4
    Min. Deposit
    $0
    Min. Trade
    $0
    Leverage
    1:30 EU, 1:200 Global
  2. NinjaTrader offer investors futures and forex trading. Use auto-trade algorithmic strategies and configure your own platform while trading with the lowest costs.

    Instruments
    Forex, Stocks, Crypto, Futures, Options, Commodities
    Regulator
    NFA, CFTC
    Platforms
    Own
    Min. Deposit
    $50
    Min. Trade
    Varies by asset
    Leverage
    -
  3. IG-US offer spread betting, CFD and Forex trading across a range of markets. They are FCA regulated, boast a great trading app and have over 47 year track record of excellence.

    Forex trading involves risk. Losses can exceed deposits

    Instruments
    Forex, ETFs, CFDs, indices, shares, commodities, cryptocurrencies, options, futures, spread betting
    Regulator
    FCA, ASIC, MAS, FSCA, JFSA, FMA, CFTC, NFA, BMA, DFSA, FINMA, BaFin
    Platforms
    MT4
    Min. Deposit
    £250
    Min. Trade
    0.1 lots
    Leverage
    1:30
  4. Moomoo is an app-based stock broker that offers trading in US, Hong Kong and Chinese shares. Clients can get started with a sign-up bonus and $0 minimum deposit.

    Instruments
    Stocks, Options, ETFs, ADRs, OTCs
    Regulator
    SEC, FINRA, MAS
    Platforms
    Own
    Min. Deposit
    $0
    Min. Trade
    No minimum
    Leverage
    -
  5. M1 Finance offers customizable and automated trading services for US investors.

    Instruments
    Stocks, ETFs, OTC stocks
    Regulator
    FINRA, SEC
    Platforms
    Own
    Min. Deposit
    $100 ($500 for IRA)
    Min. Trade
    $1
    Leverage
    -
  6. Trading in the Uphold environment offers a one-stop-shop for all your crypto requirements.

    Instruments
    Cryptos, Precious Metals, US Stocks, Environmental Assets
    Regulator
    FCA, FinCEN
    Platforms
    Own
    Min. Deposit
    $0
    Min. Trade
    $1
    Leverage
    -
  7. World Forex offers commission-free trading with a $1 minimum deposit and 1:1000 leverage. Digital contracts are also available, offering beginners a straightforward way to speculate on popular financial markets.

    Instruments
    Forex, CFD Stocks, Metals, Energies, Cryptos, Digital Contracts
    Regulator
    SVGFSA
    Platforms
    MT4, MT5
    Min. Deposit
    $1
    Min. Trade
    0.01 Lots
    Leverage
    1:1000
  8. Paxful is a crypto trading exchange and digital wallet offering low fees and easy sign-up.

    Instruments
    Cryptos
    Regulator
    -
    Platforms
    Own
    Min. Deposit
    From 0.005 BTC
    Min. Trade
    10 USD
    Leverage
    -
  9. Kraken is a top-rated cryptocurrency trading exchange offering the largest tokens and altcoins by market cap.

    Instruments
    Cryptos
    Regulator
    FCA, FinCEN, FINTRAC, AUSTRAC, FSA
    Platforms
    AlgoTrader
    Min. Deposit
    $10
    Min. Trade
    Varies upon the crypto traded
    Leverage
    -
  10. Binance is one of the leading online crypto exchanges offering Bitcoin.

    Instruments
    Cryptos
    Regulator
    FCA
    Platforms
    AlgoTrader
    Min. Deposit
    $0
    Min. Trade
    $10
    Leverage
    -
  11. Revolut is a popular financial app that also offers trading on equities and digital currencies.

    Instruments
    Stocks, Cryptos
    Regulator
    FINRA, SEC
    Platforms
    Own
    Min. Deposit
    $0
    Min. Trade
    $1
    Leverage
    -
  12. Coinmama is a popular cryptocurrency trading exchange, aimed at beginners and high-net worth investors.

    Instruments
    Cryptos
    Regulator
    FinCEN, FINTRAC
    Platforms
    Own
    Min. Deposit
    $30
    Min. Trade
    $30 to buy, $100 to sell
    Leverage
    -
  13. IB Boast a huge market share of global trading. With a minimum deposit of $10,000 however, they remain an option for larger traders only.

    Instruments
    CFD, Forex, Stocks, Crypto, Futures, Options, Commodities
    Regulator
    SEC, FCA, IIROC, SFC
    Platforms
    AlgoTrader, OmniTrader
    Min. Deposit
    $10000
    Min. Trade
    $100
    Leverage
    1:50
  14. eToro is a multi-asset platform which offers both investing in stocks and cryptoassets. Crypto Trading is offered via eToro USA LLC; Investments are subject to market risk, including the possible loss of principal. Cryptoasset investing is highly volatile and unregulated in the UK and some EU countries. No consumer protection. Tax on profits may apply.79% of retail CFD accounts lose money.

    79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

    Instruments
    Crypto
    Regulator
    FCA, CySEC, ASIC, FSA
    Platforms
    Own
    Min. Deposit
    $10
    Min. Trade
    $10
    Leverage
    None
  15. Webull offers a popular online stock trading app with low fees and generous bonuses.

    Instruments
    Stocks, ETFs, options, cryptos, forex, ADRs, fractional shares, OTCs
    Regulator
    SEC, FINRA
    Platforms
    Own
    Min. Deposit
    $0
    Min. Trade
    $5
    Leverage
    -

Spot Trading Explained

The simple definition of a spot trade is the purchase or sale of a foreign currency, financial instrument, or commodity for instant delivery. Instant delivery means that the exchange of assets happens in the moment, as opposed to non-spot trades where a price is agreed, but the exchange happens at a later date.

The price at which a financial instrument can be bought or sold immediately is known as the spot price. The spot price is set by the buyers and sellers on that market through supply and demand. For example, if an asset becomes particularly desirable, sellers will ask for more money for it, and buyers will be willing to pay more – therefore, the spot price will increase.

Forex spot contracts are the most common product and are usually settled in two business days. Spot trades on cryptocurrencies are settled instantly.

Understanding spot trading

If you are an individual trader, you can profit from by buying assets at a low cost and selling them while they are high. However, it is particularly useful for companies that need the asset they are buying. For example, a plane company might need extra fuel, which they can purchase on the spot market and have delivered within two days. This type of investment is also useful for energy companies, that can sell electricity if they have a surplus and negotiate prices.

How Spot Trading Works

This investing method is intuitive, easy to grasp and lends itself to multiple trading strategies. This also makes it a popular first step for beginners who are new to investing.

To understand more, let’s look at an example:

  1. Let’s say you want to buy a commodity, such as gold, on the spot market using USD
  2. Firstly, you need to find a broker and platform that offers the required trading pair – in this case XAU/USD
  3. In your chosen platform, 1 ounce of gold has a spot price of $1,870, and a futures price deliverable in one month of $1,920. This means you can buy 1 ounce of gold now for $1,870, or you can agree to buy 1 ounce of gold in one month for $1,920. It also means that the price of gold is expected to rise. The basis is the difference between the futures and the spot price – in this case, $50.
  4. You then place a spot buy order at your desired price and quantity. If a seller is happy with your offer, they will accept it, and once the trade is completed the gold will be transferred to your portfolio. The transaction is usually settled in two business days.
  5. This means you may profit from capital appreciation if the value of gold increases over time. You can trade with this gold at any point.

It is also possible to open a short position on a spot market. However, because spot trading requires immediate delivery and you do not own the asset to sell, you will need to buy the assets back before the end of the trading session.

To short sell, most spot market platforms will check that you have sufficient capital in the desired currency. Some brokers such as Kraken, only allow clients to open short positions when using margin .

There are two main types of spot markets:

  1. Over-the-counter (OTC) – Also referred to as off-exchange trading, OTC assets are not available on a formal exchange, like the New York Stock Exchange (NYSE). Sellers and buyers meet on an open exchange to trade through bilateral agreement without regulation from a third-party supervisor. The selling or buying price does not need to be published, so you can offer different prices to different dealers. Investments that typically trade OTC include derivatives, forex and cryptocurrencies.
  2. Market exchange – This is a formal, organized marketplace in which sellers and buyers exchange assets. Selling or buying prices are public and regularized, meaning they are more transparent but less flexible. The two biggest exchanges by market capitalization are the New York Stock Exchange and Nasdaq.

Spot trading is not the same as instant buy: in spot trading, you use a platform to buy and sell assets from other investors, but instant buy means you buy or sell assets from your broker.

Spot trading is similar to a P2P exchange because you can also buy and sell cryptos from other investors, but in P2P the trading volume is limited and often has higher fees.

Spot Market Vs Future Market

The spot trading market is different from the futures market in that when you purchase a futures contract, you do not own the asset. Instead, you are buying or selling a contract that represents the value of the asset, for example, Dogecoin.

This contract is an agreement to buy or sell a specific asset at a future date. You can trade with this contract, but you will only own the asset on the day your contract expires. Many assets will have a “spot price” (the cost to buy right now) and a “futures price” (the cost of buying at a later date) which accounts for interest rates and other factors and reflects how the market thinks the asset will behave.

As described in the example above, if you buy one ounce of gold on a futures contract, it will be one month until you receive the gold in your holdings, and until you must pay for it.

Futures contracts allow traders to speculate on the future price of an individual asset without owning it. Therefore, you can take advantage of market volatility: if you are expecting a price to rise, you will buy a futures contract to go long, or if you are expecting a fall, you will sell a futures contract to go short. This is unlike typical spot purchases in which you only make a profit if the price rises. However, future prices are often higher than spot prices, as they account for interest and other factors.

Additionally, futures contracts are often used to hedge against losses. Many traders use them to protect their portfolios against market volatility. Futures exchanges often have extra safeguards and insurance policies because of their complexity.

Spot trading is recommended for beginners as it is a relatively straightforward and a low-risk strategy.

Spot Trading Vs Leveraged Trading

Some exchanges allow investors to carry out spot trades using leverage. This is also known as margin trading. Users essentially borrow capital from a broker to maximize profits. However, this can also increase losses.

For example, let’s say your equity is $1,000. If your broker offers 1:100 leverage, you could take a position of $100,000 ($1,000 x 100). In this scenario, your broker would be effectively lending you $99,000. Any profit or loss on your position would be magnified 100 times.

Spot trading vs leveraged trading

When using a spot exchange without leverage, you will need sufficient capital in one currency to be able to exchange it for another. For example, you must have a USD balance to exchange USD for BTC on a spot exchange. As long as you have adequate collateral currencies, as defined by the broker, you will be able to open a margin position even if you do not hold a balance in the asset you wish to trade.

Spot and leveraged trading on cryptos is available with most reputable online brokers, including Binance, Coinbase, Gate.io, Bybit, Okex, Kraken and Kucoin. However, rules for spot trading and margin trading differ between brokers. For example, leveraged investing is only available on Binance using futures while on Kraken opening a short spot position is only possible with leverage. See our respective reviews for details on fees, mobile apps, trading history and more.

Pros Of Spot Trading

Beginners may be drawn to this style of trading because of its ease and simplicity. Other benefits include:

  • Delivery – One of the major advantages spot trading has over other forms of investing, such as futures, is that the transaction is settled immediately. The settlement date for stocks, forex and other commodities, such as gold and metals, is typically two business days after the execution day. For cryptocurrencies, settlement occurs instantly.
  • Risk – Unlike margin trading where losses can be magnified, the most you can lose is your initial investment. This makes spot trading an ideal candidate for those new to investing and looking to develop their skills.
  • Liquidity – Spot markets are highly liquid. The spot price is the current price for the immediate purchase, payment, and delivery of a certain asset. Prices in derivatives markets such as futures and options will therefore be based on the spot price. A liquid market is considered less risky as there will generally be someone willing to take on the other side of the position.
  • Transparency – If you are investing on an exchange, prices are typically public. Moreover, they reflect the current value of the asset, as opposed to the estimated future value. This means you do not need to speculate, making it easier for beginners.
  • Flexibility – If you are trading over the counter, you can look for deals from different brokers, choosing the most convenient option for your goals. You can also hold if you are not happy with the current prices. In addition, the spot market offers the possibility to invest smaller amounts, while future contracts often have minimum requirements.

Cons Of Spot Trading

  • Immediate delivery – Because the exchange of assets happens immediately, you can only trade with assets you own, as opposed to futures contracts where you can agree to pay a certain amount for an asset even if you do not own it yet. This means that short selling is limited.
  • Lack of transparency – If you are trading over the counter, buying or selling prices are not public. Therefore, you cannot be sure if the deal you are being offered is higher, similar or lower than the rest of the deals happening at the same time.
  • Volatility – Exchange rates for certain assets, like currencies, are extremely volatile. It is important to study the market carefully to ensure you are opening or closing your position at the right time.

How To Start Spot Trading

  1. Pick a market – Choose what assets you would like to trade. These could be forex, commodities, cryptocurrencies or an alternative.
  2. Choose a broker, open an account and log in – You should carefully examine the benefits offered by each broker, and choose one that meets your needs. Check out the next section to learn more on how to choose the best broker for you.
  3. Find an opportunity – Many online brokers offer technical indicators and signals that you can use to inform decisions. You should also keep an eye on the order book, which shows the price at which other investors are looking to buy or sell. It’s a good idea to define a trading plan before you begin.
  4. Decide if you are going long or short – Analyze whether your target asset is likely to increase or decrease in value. If it is likely to increase, you can buy (go long). If it is likely to decrease, and you own some of this asset, you can sell (go short). Before you open a position, it’s important to know how much capital you stand to earn or lose. There are multiple online profit calculators which can help you work this out.
  5. Place stops and limits – Some brokers offer stop losses and take profit features, which are a great way to control your risk and increase your profit without constantly looking at the market.
  6. Monitor the market – Keep an eye on the technical indicators and order book offered by your broker.
  7. Close your position – If you think the market is in a profitable place, close your position. You can then calculate your profit or loss. Also remember to follow your trading plan.

Note, any profits earned from spot trading may be subject to capital gains tax in the country you live in. Check the tax treatment of your local government to see at what point your earnings will become taxable.

Spot gold trading strategies

What To Look For In A Spot Trading Broker

  • Markets – Brokerages offer access to different financial markets. Ensure that your online broker deals the forex pair, for example, that you’re interested in. You will also need to check that the firm allows citizens from your country to spot trade. If you want to invest on a particular exchange market, for example the New York Stock Exchange, find a broker that facilitates access.
  • Execution of spot orders – A delay of even a few seconds in processing your order can lead to a loss, so ensure your broker offers instant executions.
  • Trading volume – Choosing a platform with a high volume of buyers and sellers will mean increased liquidity. Brokerages with an international presence are more likely to have plenty of customers to sell or buy your assets.
  • Market indicators – Market indicators plus signals and alerts will help you make informed decisions. Choose a platform that has market indicators that will support your trading strategy, and if you are a beginner, find a provider that has tutorials and explanations to better understand how these indicators work.
  • Fees and charges – Each broker will have a minimum account deposit, minimum trade size and a spot trading fee. Ensure that your broker has competitive pricing, plus a minimum deposit and volume that matches what you are willing to invest.
  • Platforms – Many online brokers offer a variety of platforms including browser-based terminals and mobile apps. To ensure a stress-free trading experience, look out for platforms and apps with user-friendly interfaces, extensive features, and positive online reviews. Many platforms will also offer demo accounts which are a great way to develop your skills and get to grips with a platform before investing real money.
  • Customer support – Customer service can be in the form of live chat, email or telephone. Good customer support means that any problems that you have can be more easily resolved. Reading online reviews is a great way to assess the quality of a broker’s customer support.
  • Regulation – A regulated company is more likely to be held accountable for any mistakes and will increase the security of your funds. Among the top regulators of day trading brokers are the Cyprus Securities & Exchange Commission (CySEC) and the UK (Financial Conduct Authority).

Final Word On Spot Trading

Whether you’re in Hong Kong, Delhi, India, Romania, Dubai or Abu Dhabi, spot trading is an attractive first step for many investors. In a bull market, it can help generate profits, and its simplicity means that transactions can be carried out quickly and easily. However, spot trading doesn’t necessarily lend itself to sophisticated bot strategies usually associated with futures or options contracts which may be limiting for more experienced investors.

If you want to understand more about spot trading cryptos, companies such as Binance, Coinbase and Kraken offer their own academy, tutorials and telegram channels that describe systems, techniques and patterns for dummies. Alternatively, see our list of the top spot trading brokers to get started.

FAQ

What Is Spot Trading?

A spot trade is the purchase or sale of a financial instrument with instant delivery. This could be stocks, gold and other metals, crude oil or cryptocurrencies like Bitcoin and Doge.

Is Spot Trading A Good Idea?

Spot trading is an easy concept to understand, which makes it an ideal starting point for beginners. New investors can even keep a journal of their positions to avoid liquidation and make it easier for future reference. Furthermore, investing without leverage is arguably less risky as the most you will lose is your initial capital. However, in a bear market it can be hard to make a profit.

Is Spot Trading Halal?

This investment method is considered Halal and not Haram in Islam if the availability of delivery and payment are within the spot period. Consult your local religious leader for advice.

Where Can I Spot Trade Cryptocurrency?

Most reputable online brokers allow users to trade on the spot market, but rules and restrictions vary between platforms. Some of the best-known crypto brokers offering spot markets include Binance, Coinbase, Kraken, Okex, Gate.io and Bybit.

What Is A Spot Trading Fee?

If you are spot energy trading in Dubai via an online broker, then you might need to pay fees and commissions to use their platform and services. The same goes for indices such as Nifty in India or other assets from other countries.

When Are Spot Trading Hours?

Spot gold and silver trading is available during the working week for 23 hours a day, closed only from 9 PM to 10 PM GMT daily. Crypto is open 24/7. For other trading hours such as spot metals, energies and stocks, check the market operating hours in the relevant area.