Cash and currency markets - how do they differ?
There are many markets that are in some way a mechanism that influences the sale or purchase of goods. In this text, we decided to take a better look at two of them, because they are very similar and, unfortunately, also regularly confused with each other. What is the spot market and what is the currency market in Poland?
All over the world, transactions are performed on various markets, and due to their form and method of transaction, it is possible to divide them into individual categories. The spot market and the currency market are similar in many respects, but they are not synonyms, so it is worth knowing how to distinguish them.
Currency market
The foreign exchange market is a term that refers to the entirety of currency exchange, i.e. both selling and buying them - in exchange for a different currency, usually coming from another country. The concept is directly related to the exchange rate, i.e. the current price of a given monetary unit expressed in another currency. Transactions in this market are carried out, for example, through commercial banks and sometimes money exchanges. In the case of the currency market, currency exchange takes place directly between participants of this market.
One of the basic currency markets is Forex, which is an international and over-the-counter market that is not regulated by any institution. In his case, transactions are divided into two types - spot and forward. In the first case, these are instant transactions, following the current exchange rate, while the second, they are currency exchanges at a later date, but at the "today" rate for the future transaction.
Cash market
The spot market, on the other hand, may or may not apply to currencies. It is based on the fact that it concerns spot transactions, i.e. instant transactions, hence its other name, the spot market. However, unlike the currency market, the subject of transactions can be, for example, stocks, cryptocurrencies, commodities etc.
In the spot market, transactions are always settled at the current rate and immediately. In practice, however, it may often turn out that the said immediacy is still associated with a delay of one or two days. The time lag was originally motivated by the lack of advanced technology, as the processing of transactions was the task of humans, non-mathematical algorithms and virtual exchanges.
Cash market transactions most often involve banks and mutual funds that trade for their own use or on behalf of their clients (e.g. when a client orders a bank to buy shares). They take place on regulated and OTC (over the counter) markets, i.e. unregulated, i.e. when both parties individually agree on the parameters of the transaction. For example, an OTC transaction is the purchase of currency in an exchange office.
The spot market and the currency market
The foreign exchange market deals only with the exchange of currencies, moreover, transactions within it can be spot, as well as forward. On the other hand, the spot market applies only to spot transactions, and their subject may not only be currency, but also stocks or commodities.
Cash market - the quintessence of cryptocurrency trading
The cryptocurrency market is a cash market. In his case, the conversion of digital currencies is immediate and applies to the current exchange rate. The aforementioned two-day delay does not occur here. Thanks to this, cryptocurrencies have become so popular - the person who trades them has control over their funds all the time and can make selected transactions at any time. This is a great idea for an investment!
We invite you to use Impily, an online cryptocurrency exchange office. We offer purchase and sale of digital currencies at an mid-rate, without additional commissions. Our platform uses modern security technologies and is also easy to use. We also guarantee technical support from our experts. We enable you to trade currencies such as Bitcoin, Ethereum, Ripple, LiteCoin and many others.
Attention! The above article neither in whole nor in part constitutes a "recommendation" within the meaning of the provisions of the Act of July 29, 2005 on trading in financial instruments or the Regulation of the European Parliament and of the Council (EU) No. 596/2014 of April 16, 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6 / EC of the European Parliament and of the Council and Commission Directives 2003/124 / EC, 2003/125 / EC and 2004/72 / EC and Commission Delegated Regulations (EU) 2017/565 of 25 April 2016 supplementing Directive 2014/65 / EU of the European Parliament and of the Council as regards organizational requirements and operating conditions for investment firms and defined terms for the purposes of this directive. The content contained on the website does not meet the requirements for recommendations within the meaning of the above-mentioned act, incl. do not contain a specific valuation of any financial instrument, do not rely on any valuation method, and do not identify investment risk.