What are SPOT markets and why should we trade through them

Barter Trade
The world’s market system, the way commodities are traded, has evolved through out millennia ever since human started barter trade. It was established that barter trades were necessity for survival, food for hides for example. The exchanges were exclusively conducted with other tribes while sharing were practiced within own tribes.
Around 12,000 - 10,000 BC agricultural revolution brought about an establishment of villages. People stopped moving and started settling down. Local trades were carried out between villages. Rice, main crops at the time, were used as currency of choice. Other items were valued by bushels of rice.
Ancient trades were primarily based on 3 factors:

  • Local Economy
  • Money as a common denominator.
  • Types of trades

Drawbacks of barter trades are:

  • Both sides must have needs for the other’s goods
  • Hard to determine exact values of goods to be bartered.
  • Every trade must be exact. There is no changes.
  • There can be no accumulation of wealth.

Money
Money, as instrument of trades, was invented out of necessity. It was first used in China around 2,500 BC. The Chinese used sea shells as money until around 900BC when they started using bronze in the share of sea shells or swords as currency. During the Warring States period (475 BC to 210 BC), there were many different currencies in China only to be abolished by Qin Shi Huang, the first emperor of China in favour of his own and world’s first copper coin currency in 210 BC.

Monetary Laws
The world’s first monetary law, called Code of Hammurabi was decreed in 1754 BC in Babylon. It put in places wages and liabilities for each class and professions of citizens which emphasised class devisions.
Around 1,300 AD Sukhothai established local trades among Thais and foreigners by using “Pod Duang”, the word Duang refer to a beetle for the way the money looked. Many silk and jewellery were traded at the time.

Barter trades and the uses of money as a go between currency for trades started “On The SPOT” trading, an immediate cash based settlements.
The intermediate structures of economy:

  • Trades among many townships and cities.
  • Uses of copper coins as money.
  • many SPOT markets.

Problems of SPOT Markets
Even though SPOT markets are essential to the world economy, they have their short comings. Their disadvantages may include:

  • Cannot accurately predict future demands or supplies.
  • Cannot efficiently support inter-cities trades
  • Can only sell what a merchant carry with him.
  • Goods may run out fast or may have many left over.

Forward Markets
Forward markets are more adequate and efficient to meet these above conditions. Merchants can strike deals for future settlements. They can meet demands more accurately and know for certain what to produce or bring to the markets. However, each deal only serve 2 merchants who made it.

  • Buyers agree to pay for the goods on the agreed date.
  • Sellers agree to deliver the goods on the agreed date.

Relationships and risk of the two markets

Naturally in cash market places, there are negotiations and a general acceptable price for each type of commodity. This price may rise and fall according to their supply and demand and other conditions. This price for each commodity is called its SPOT price. When the time comes for two merchants to settle their forward contract, the SPOT price for their commodity may be higher or lower than their agreed price.

  • If agreed price is higher than SPOT price, the buyer may default.
  • If agreed price is lower than SPOT price, the seller may default.

Futures Market
During 17th century AD in Japan, Shogun paid his samurai with rice as wages. When the money exchange shop merchants, together with rice traders, hoarded the rice causing extreme shortages. Many peasants starved to death and many samurais took part in street riots. Finally Shogun solved the problems by setting up a central rice market where money exchange merchants and rice traders can trade by the rules effectively creating the world’s first Futures Exchange in 1697 AD. This market, Dojima Rice Exchange in Osaka had operated until 1939 when it was replaced by a Japan’s Rice Agency.
Many Futures Markets followed, London Metal Exchange in 1877 AD traded 3 months Forward Copper Contracts and Chicago in 1848 AD traded Corn Futures Contracts.
Problems of Futures Contracts
Many of these Futures Markets have become so successful as financial instruments that the ratio of contracts to actual deliveries are as high as 20,000 to 1 causing a wide gap between contract price and actual SPOT price at expiration. When traders try to force the Futures prices as reference prices for buying physical goods in SPOT markets, they end up twisting and distorting the actual prices.


New SPOT Markets
It used to be that SPOT markets are low-tech street corner twice a month meet ups. And Futures Markets are high tech high investment high risk setups.
But we have seen advanced developments in Internet trading and programming technologies in the last decade that to start real time trading in Online SPOT markets is not difficult anymore. We can have high technology system that serve many different twice monthly meet ups markets and connect them to many traders from across regions. They can trade in real time under free and fair regulations.
Trade Connex Limited provide the SPOT market system as a service. Traders only need to apply once and they can start trading in all the markets. Market operators can set up their online platforms and begin selling. All in a convenience and safe, secured system. The system is multi languages so it can be used anywhere in the world. With Blockchain settlements, traders can settle in real-time.
Move into 21st century and start online trading now.

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