Spot price definition

What is the spot price?

The spot price or spot rate is the current value of an underlying asset, for which it can be bought or sold with the expectation of immediate delivery. The term ‘spot price’ is often used in commodities and forex markets.

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Spot prices vs futures prices

The main difference between spot and futures prices is the time of execution and delivery. While spot prices are for immediate buying and selling, a futures contract will delay the payment and delivery to a predetermined date in the future.

The terms contango or backwardation describe the relationship between the spot price and futures price. Contango is a market condition where the futures price is currently higher than the spot price of the underlying, while backwardation means the futures price is currently trading lower than the spot price of the underlying.

While the difference between spot prices and futures prices is an important distinction in the commodities and forex markets, it is less relevant for the stock market – as physical shares are always traded at the current market price. However, spot prices and futures prices are important on stock options, equity index futures and single-stock futures.

Example of a spot price

In forex, the spot price is sometimes referred to as the spot rate, and it is the quoted exchange rate between two currencies in a forex pair. For example, if the quoted exchange rate for EUR/USD was $1.2354, then that is also the spot rate. This figure shows that you would have to spend $1.2354 in order to buy €1.00.

For an example of the spot price in the commodities market, let’s look at Brent crude. If the spot price of Brent was currently $55.00, it means that you could pay $55.00 now and receive immediate delivery of the amount of oil that you bought.

However, if you were trading on a futures price of $57.00, it means that you would be opening a contract once the price of the contract meets the futures price. For example, once the market value exceeded $57.00, you would execute the trade and receive delivery of the underlying.

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