What is spot and what is futures?

There are similarities between futures trading and spot trading, such as both trading methods, real buying and selling, and involving the transfer of commodity ownership. Personally, I think spot trading is easier to do. The differences are as follows:

(1) The direct target of buying and selling is different. The direct object of spot trading is the commodity itself, including samples, objects and pricing. The direct object of futures trading is futures contracts, not how many lots or contracts are bought and sold.

(2) The purpose of the transaction is different. Spot trading is a kind of transaction between primary currency and primary commodities, and physical delivery and payment settlement are carried out immediately or within a certain period of time. The purpose of futures trading is not to obtain physical objects at maturity, but to avoid price risks or gain profits through hedging.

(3) Different trading methods. Spot transactions are generally one-on-one negotiations to sign contracts, and the specific content is agreed by both parties to the transaction. If the contract cannot be fulfilled after signing, it will be resorted to law. Futures trading is conducted in an open and fair manner. One-on-one negotiation (or private hedging) is considered illegal.

(4) Different trading places. Spot transactions are generally decentralized. For example, grain and oil, daily industrial products and means of production are scattered by some trading companies, manufacturers and consumers. Only some fresh and individual agricultural and sideline products are concentrated in the form of wholesale markets. However, futures trading must be conducted in an open and centralized manner in the exchange in accordance with laws and regulations, and cannot be traded over the counter.

(5) The security system is different. Spot trading is protected by contract law and other laws. If the contract is not fulfilled, it will be destroyed by law or arbitration. In addition to national laws, industry and exchange rules, futures trading is mainly guaranteed by margin system.

(6) The range of goods is different. 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.

(7) Different settlement methods. Spot transaction is the settlement when the goods arrive, no matter how long it takes, it is one or more settlements. Due to the implementation of the margin system in futures trading, profits and losses must be settled daily, and the system of marking the market day by day is implemented. The settlement price is calculated according to the transaction price, and the settlement price of CZCE is the weighted average price of all futures contracts of the same variety on that day. The settlement price has the following functions:

(a) Basis for calculating the profit and loss of closing positions and positions;

(b) the basis for deciding whether to increase the deposit;

(3) Basis for determining the amount of suspension on the next trading day.