Spot Price: What is the spot price
The spot price is the current market price at which an asset – such as a security, commodity or currency – can be bought or sold for quick delivery. Where spot prices are specific to both time and place, the spot prices of most securities or commodities around the world remain largely the same when calculating exchange rates in the global economy. Unlike the spot price, the futures price is the agreed price for the future distribution of the asset.
Spot price basic
Spot prices are commonly referred to in relation to commodity futures contracts such as oil, wheat or gold contracts. This is because stocks always trade on the spot. Buy or sell stock at the price you quote and then exchange the stock for cash. The futures contract price is determined using the spot price of the commodity, the expected change in supply and demand, the risk-free return rate for the commodity holder, and the cost of transportation or storage in relation to the maturity date of the contract. . Futures contracts that are long-term expiration costs more storage than the contract with the nearest expiration date. Spot prices fluctuate constantly.
While security, the spot price of a commodity or currency is important for immediate buying and selling transactions, it can be more important in a large derivatives market. Options futures contracts and other derivative securities or commodities allow buyers and sellers to lock-in at a specific price in the future when they want to own or own the underlying property. Through derivatives, buyers and sellers can reduce the risk of constantly changing spot prices to some extent. Futures contracts also provide important tools for producers of agricultural products to protect their crops from price changes.
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