Over many decades, trading has been the rationale behind the strength of Nations and people in general, as it has been their major source of growth, either in GDP as a Nation or Per capita income as an individual.
Hence in reality, the idea of spot trade and margin trade can not be over looked, as it is a concept in trade which will aid a trader in understanding certain mechanisms operational in the modern trade system.
a spot trade or transaction, or lets say spot, is a contract of buying or selling a commodity or currency for a precise settlement on the spot date, which is normally two business days after the trade date. The settlement price is called spot trade or better say spot price.
Further we can say that s spot trade is a trade involving two parties who who pull their resources to trade at a spot, and are reimbursed or settled in after or at two business days.
Hence we can say that Spot trades involves the buying or selling of foreign currency or commodities. They are also securities traded for immediate supply in the market on a specific day.
The real price of a financial instrument is called the spot price of that asset. On the other hand, it could also be said to be the price at which an instrument or assert could be bought or sold immediately in the market. And someone may also ask,
who sets or creates the spot price? Really they are just the Buyers and sellers of different assets and securities in different exchange platform forms.
And Finally there is the spot rate which Is evaluated or seen as the stipulated price ment for the settlement of securities or currencies in different exchanges.
This is actually asystem or method of trading assets using funds provided by others or a third party persay. This allow traders to access or acquire greater capital or fund, which gives them an advantage to leverage on others.
From my little research, I discovered that margin trade will really help a trader who really understands the market sytem, in the sense that he has no adequate fund, so leveraging in the funds provided by either the exchange platform form or other traders in the system will help one to realize or amass great profit.
On the other hand, I can also say that margin trade is a portion of a traders currency, which equates the currency he/she is trading against locked up at or within the period of his trade placement and Finally released after a profitable trade engagement.
For instance, let's assume that that one has #5m as his stipulated capital in an exchange and he wishes to trade against the doller, and hr places a trade of #100000 against the dollar. Here the exchange system will lock up his #100000
and besides this very amount that was used to place the trade is what that is called (margin trade) and not the whole of his stipulated capital he deposited in the system.
SOME OF THE ADVANTAGES OF SPOT TRADE
- It can require a minimum capital for making transactions compared to some contracts on the futures market that requires minimum investment before placing a spot trade.
2.spot trade allows for transparency, as every transaction is carried out at the current market price of assets
3.in the spot markets there is the power of sustitabilty choice in the part of the trader, in that if he is not satisfied, he can find a better deal with suitable price and terms.
SOME OF THE DISADVANTAGES OF SPOT TRADE
1.it is often characterized with lack of planning compared to future trading where traders comes to consensus at a future period
2.there may be no checks and balances if there are some atom of abnormalities may be due to network fluctuations during the the term of a spot trade.
3.There is the tendency of fluctuation in price, which could cause a spot trader to loose some reasonable asset values basically because of the fluctuational nature of most assets.
1.It helps in building ones financial or asset status in an exchange snappily: since there is the tendency of scarce resources trading on margin will boost the financial worthof a trader who really understands how to trade.
2.It boost your active demand for assets: with the help of margin trade, one who could not have been able to place a trade of let's say £100 due to insufficient capital can now do so. That is, margin trade helps someone in accessing his needed asset values as to be able to place a trade.
3.margin trade helps some to place trade different intervals probably at the same time, due to his enough or more available capital at his disposal.
1.it can be stressful to some traders, because there is the possibility to place many trades at a closer time intervals which could be difficult to control or manage by the said trader.
2.It can lead to loss of assets: really trading on margin can lead to loss of assets. I would like to add that any body who can not start with the little he has can not be satisfied trading on margin, because human desires and wants runs on the scale of insatiability so due to the voracious nature of most people they may loose assets as they leverage on peoples earned assets.
3.INDEBTEDNESS: Trading on margin can lead someone into becoming a debtor, because in trade their is the possibility of even loosing all your assets if one is not a rational trader.
Thanks to @besticofinder because I haven't given myself any time to research on this very subject matter until now I was taken through them, really am grateful.
Besides am most grateful to @steemitblog for setting up this very educative community which I have found helpful thanks.