Spot Trading

Spot trading allows you to buy or sell an asset at its current market price. You can make money if you sell it for more than you paid. However, falling prices can also lead to losses.

• Spot trading uses current prices of assets
• You earn when selling prices exceed costs
• Falling market prices can cause financial losses
• Regular Indian equity trades follow T+1 settlement
• Some eligible shares offer T+0 settlement options
• Brokerage and taxes can reduce your profits

You can earn money from spot trading when the price of an asset rises after you buy it. However, you may lose money if its price falls.

For example, suppose Ravi buys 10 shares at ₹200 each.

Here is how his profit would be calculated:

• Buying price: ₹200 per share
• Number of shares: 10
• Total investment: ₹2,000
• Selling price: ₹220 per share
• Total selling value: ₹2,200
• Gross profit: ₹200

Ravi earns a gross profit of ₹200 because he sells the shares for more than he paid.

Now, suppose the share price falls to ₹180. If Ravi sells all 10 shares, he receives ₹1,800 and makes a gross loss of ₹200.

These calculations exclude brokerage, taxes, and other trading charges.

Remember: Spot trading does not assure profits. Your returns depend on market prices and trading costs.

Spot trading means buying or selling an asset at the current market price for near-term settlement.

These assets can include shares, currencies, gold, and other commodities.

For example, if a share is available at ₹500 and your order is executed at that price, you pay ₹500 per share before charges. You do not agree today to buy that share at a fixed price several months later.

In India, equity spot trading generally takes place in the cash market. You can buy shares and hold them in your demat account after settlement.

Spot trading works by matching a buyer's order with a seller's order at an available market price.

Here is how the process works:

1. Select an asset: Choose the share or other asset you want to trade.
2. Check the price: Look at its current market price.
3. Place an order: Enter the quantity and select a suitable order type.
4. Execute the trade: Your order is completed when a matching order is available.
5. Complete settlement: The money and securities are transferred according to the applicable settlement rules.

When will you receive your shares?

In India, regular equity cash market trades generally follow T+1 settlement. This means settlement takes place on the next trading day.

For example, if you buy shares on Monday, they generally settle on Tuesday, provided both are settlement working days.

An optional T+0 settlement cycle is also available for eligible shares, subject to applicable conditions. Under T+0, settlement takes place on the same trading day.

Remember that placing a trade and receiving the shares are two different steps.

Spot trading is not limited to company shares. It also takes place in other financial and commodity markets.

Here are the main types:

1. Stock spot market: Buying and selling shares at current market prices, with settlement under cash market rules.
2. Currency spot market: Exchanging currencies at an agreed exchange rate for near-term settlement, commonly within two business days.
3. Commodity spot market: Buying or selling commodities such as agricultural produce and industrial metals for near-term delivery.
4. Precious metals spot market: Trading metals such as gold and silver at current market prices.
5. Energy spot market: Buying or selling products such as natural gas and electricity for near-term delivery.

Different spot markets have different rules. Some markets are not directly available to retail investors.

Spot trading can lead to losses when prices move against you. Understanding these risks helps you avoid making decisions based only on expected profits.

Here are some common risks:

• Price risk: A share bought at ₹200 may fall to ₹180, reducing its value.
• Liquidity risk: You may not find enough buyers when you want to sell.
• Trading charges: Brokerage, taxes, and other charges reduce your returns.
• Execution risk: Your order may execute at a different price when the market moves rapidly.
• Settlement risk: Delivery failures or operational problems may delay settlement.

For example, if you buy shares worth ₹5,000 and their price falls by 10%, their market value becomes ₹4,500.

This means a loss in value of ₹500, even before considering trading charges.

You cannot remove market risk completely. However, some precautions can help you manage possible losses.

Here are a few practices to understand:

1. Check the asset: Understand the company or commodity before making a decision.
2. Decide your budget: Avoid using money needed for rent, food or emergencies.
3. Understand order types: Know how market orders and limit orders work.
4. Consider stop-loss orders: These can help control losses, although the selling price is not guaranteed.
5. Calculate trading costs: Include brokerage and taxes when checking your profit or loss.
6. Avoid unnecessary borrowing: Borrowing money for trading increases your financial risk.

These steps cannot guarantee profits or prevent every loss. They can help you understand the money at risk.

The main difference is that spot trading involves buying or selling an underlying asset, while futures trading involves a contract linked to that asset.

For example, when you buy shares in the cash market and take delivery, you own those shares after settlement. In futures trading, you hold a contract rather than directly buying the shares at the time of the trade.

Spot trading allows you to buy or sell assets at current market prices. You may make money when prices rise, but falling prices can also cause losses. In India, regular equity cash trades generally settle on T+1, while eligible shares may offer T+0 settlement. Before assessing a trade, understand the asset, check the price, and calculate the possible costs. Knowing how spot trading works helps you judge the risks and avoid decisions based only on expected profits.