What is a Spot Market and How Will it Help Crypto?
Contract markets trading platform ErisX has announced the launch of a spot market for cryptocurrencies, in what chief strategy office Matt Trudeau calls a “major milestone” for the company. The platform will initially offer U.S. dollar (USD) trading pairs against Bitcoin (BTC), Ethereum (ETH), Bitcoin Cash (BCH) and Litecoin (LTC).
ErisX previously dealt in interest rate swaps under the name Eris Exchange before transitioning to the ErisX brand and adopting a cryptocurrency futures trading business model. Last December, the company closed a $27.5 million funding round from several high profile investors, including crypto mining giant Bitmain and Fidelity Investments, the second largest mutual-funds provider in the U.S.
In an interview with Coindesk, Trudeau said the crypto spot market is only the first component in the companies overall corporate strategy of what they are looking to do in 2019. The company also intends on adding a range of derivatives trading products for cryptocurrencies during this year.
So what is a spot market and what does it mean for the cryptocurrency industry?
A spot market is a platform that makes spot trading available for certain financial assets such as commodities, currencies or securities. Spot trading is basically instant cash trading for an asset, as opposed to futures contract trading where a price is agreed instantly but actual fund and asset transfers are delayed.
Spot markets are also sometimes referred to as cash markets or physical markets. The ‘spot’ price is the immediately existing price that an asset can be sold for at any given moment. In highly liquid markets, spot prices can change every second. The key differentiation is that, unlike futures contracts, spot market trades are not prone to delayed delivery. This makes them attractive if a specific asset or currency is required urgently but less attractive if you believe your equity may mature before delivery.
The provision of this kind of cryptocurrency trading spot market opens up spot trading of digital assets to traditional fiat traders who otherwise may not wish to trade on a dedicated cryptocurrency exchange. For crypto traders who already use exchanges where trades are generally completed instantly anyway, a spot market wouldn’t necessarily represent a new or useful offering.
ErisX CEO Thomas Chippas has noted that this launch is just the first step in the development of the new product. “We are moving from an initial phase to a public launch, and will continue to work with our partners, investors and regulators to expand access,” he said.
The company now needs to work hard to onboard customers and further develop the platform. It recently completed a third round of fundraising that accrued it an additional $20 million in investments.