Hello friends..

I hope you are all doing well. This post is as a fulfilment of the assignment given by professor @besticofinder, I hope it meets the required standard.

Homework Task 3.

You need to do your own research and create a post discussing the following topics:

• 1. Explain spot trading and Margin trading.
• 1. Mention the advantages and disadvantages of spot and marginal trading.

Spot Trading.

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What is spot trading?

This is the sale or the purchase of a currency or a commodity at an agreed price for instantaneous delivery.

• Characteristics of spot trading.

1. Spot trades involve securities traded for immediate delivery in the market on a specified date.
2. Transactions are settled at the ruling price known as the spot price or spot rate.
3. Delivery of the asset takes place immediately or otherwise at T+2.

The current price of a financial instrument, crypto currency or commodity is called the spot price. It is the price at which a commodity, financial instrument or crypto currency can be sold or bought immediately. Buyers and sellers create the spot price by posting their buy and sell orders.

Types of Spot Markets.

There two main types of spot markets –

• Over-the-counter (OTC).
• Market exchange.

Advantages of Spot Markets

• Spot markets facilitate trading in a transparent environment, where transactions occur at prevailing prices that are public information and known to all parties. Basically, it is easier to execute spot market contracts.
• Traders in spot markets can hold and find a better deal if they are not satisfied with current prices and terms.
• Trades are done and completed on the spot.

Disadvantages of Spot Markets

• There may be no recourse if a party notices some irregularities in the trade after the spot market transaction is concluded.
• There is usually a lack of planning in spot trades, as opposed to forwards and futures trading where parties agree on settlement and delivery at a future date.
• The spot market is not flexible in terms of timing, as parties will have to handle physical delivery on the spot.
  _ The interest rate spot market is affected by counterparty default risk.

Margin Trading

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What is Margin Trading?

Margin trading is a facility under which you buy stocks that you can’t afford. You are allowed to buy stocks by paying a marginal amount of the actual value.

Advantages of Margin Trading.

• The opportunity to leverage assets.
• The ability to profit from share price declines.
• A convenient line of credit.
• Low interest rate.

Disadvantages of Margin Trading.

• Stress.
• Increased risk.
• Margin call.
  
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