Futures trading VS spot trading

Futures trading and spot trading have the same thing: they are both a trading method, both are real purchases and sales, and involve the transfer of commodity ownership, etc. .

The difference between futures trading and spot trading:

1) The direct objects of buying and selling are different

The direct object of spot trading is the commodity itself, including samples, There are physical goods and pricing depends on the goods. The direct object of futures trading is futures contracts, which is how many hands or futures contracts to buy or sell.

2) The purpose of transaction is different. Spot trading is a transaction of first-hand money and goods. Obtaining or transferring the ownership of goods immediately or within a certain period of time is a direct means to meet the needs of buyers and sellers. The purpose of futures trading is generally not to obtain physical goods upon maturity. The purpose of the hedger is to transfer the price risk of the spot market through futures trading, and the purpose of the investor is to obtain profits from the price fluctuations in the futures market.

3) Different transaction methods

Spot transactions are generally one-on-one negotiations to sign a contract. The specific content is agreed upon by both parties. If the contract cannot be honored after signing, legal action will be taken. Futures trading is conducted on futures exchanges in an open and fair competitive manner. Negotiating one-on-one deals, or private hedging, is illegal.

4) Different trading venues

Spot transactions are generally not restricted by transaction time, location, or objects. Transactions are flexible, convenient, and highly random. You can trade with opponents at any venue. Futures trading must be conducted openly and centrally within the exchange in accordance with regulations and cannot be traded over-the-counter.

5) Different commodity ranges

The varieties of spot trading are all commodities that enter circulation, while the varieties of futures trading are limited. Mainly agricultural products, petroleum, metal commodities and some primary raw materials and financial products.

6). Different settlement methods

Spot transactions are cash on delivery. No matter how long the time is, it is settled once or several times.

Futures trading implements a daily debt-free settlement system, and profits and losses must be settled daily. The settlement price is calculated based on the weighted average of transaction prices.

7) Different credit levels

There is no credit guarantee in the spot transaction method. Although the buyer and seller can clear the payment, there are still issues such as the quality, quantity, price, and payment of the goods. There is a risk of controversy.

Futures trading has 100% credit. When it comes to delivery, the money is better than the goods, and the goods are better than the money. Moreover, there is 100% credit guarantee in terms of the quality grade and quantity of the goods.

If you are interested in spot investment, please have an in-depth discussion if you have the opportunity!