What is a “spot” transaction?

A: In a spot market, transactions are settled “on the spot”. Once a trade is agreed upon, the
settlement – i.e. the actual exchange of money for goods – takes place with the minimum
possible delay. When a person selects a shirt in a shop and agrees on a price, the settlement
(exchange of funds for goods) takes place immediately. That is a spot market.


A: There are two real–world implementations of a spot market: rolling settlement and
real-time gross settlement (RTGS).
With rolling settlement, trades are netted through one day, and settled x working days
later; this is called T + x rolling settlement. For example, with T+5 rolling settlement,
trades are netted through Monday, and the net open position as of Monday evening is
settled on the coming Monday. Similarly, trades are netted through Tuesday, and settled
on the coming Tuesday.
With RTGS, all trades settle in a few seconds with no netting.
Rolling settlement is a close approximation, and RTGS is a true spot market.
The equity market in India today, for the major part, is not a spot market. For example,
the bulk of trading on NSE takes place with netting from Wednesday to Tuesday, and
then settlement takes place five days later. This is not a spot market. The “international
standard” in equity markets is T+3 rolling settlement