The difference between Spot market strategy and Futures contracts depends on your investment goals and risk tolerance.
*Spot Market*
- Buying and selling is done immediately at the current market price.
- Settlement is immediate or within two business days.
- Risks are limited to the current value of the asset.
- Suitable for day traders and short-term investments.
*Futures Contracts*
- Buying and selling is based on a contract to deliver an asset at a specified price on a future date.
- Can be used for speculation or hedging against price fluctuations.
- Provides leverage, increasing the potential for both profit and loss.
- Suitable for experienced traders who want to manage risk.
*Comparison between Spot Market and Futures Contracts*
- *Ownership*: In the spot market, you own the asset immediately, while in futures contracts, you own a contract for future delivery of the asset.
- *Pricing*: The price of the spot market depends on current supply and demand, while the price of futures contracts is based on future market expectations.
- *Risks*: The spot market is less risky due to the absence of leverage, while futures contracts are riskier due to leverage.
*When to use each strategy?*
- Use the spot market for short-term investments and day trading.
- Use futures contracts to hedge against risks and take advantage of leverage.