While spot prices are specific to both time and place, in a global economy the spot price of most securities or commodities tends to be fairly uniform worldwide when accounting for exchange rates.
In contrast to the spot price, a futures price is an agreed upon price for future delivery of the asset. This is because stocks always trade at spot.
A futures contract price is commonly determined using the spot price of a commodity, expected changes in supply and demand, the risk-free rate of return for the holder of the commodity, and the costs of transportation or storage in relation to the maturity date of the contract.
Futures contracts with longer times to maturity normally entail greater storage costs than contracts with nearby expiration dates.
Spot prices are in constant flux. While the spot price of a security, commodity, or currency is important in terms of immediate buy-and-sell transactions, it perhaps has more importance in regard to the large derivatives markets. Through derivatives, buyers and sellers can partially mitigate the risk posed by constantly fluctuating spot prices.
Futures prices can be in contango or backwardation. Futures markets can move from contango to backwardation, or vice versa, and may stay in either state for brief or extended periods of time.
Looking at both spot prices and futures prices is beneficial to futures traders. Spot price is the price traders pay for instant delivery of an asset, such as a security or currency.
They are in constant flux.
Spot prices spot price of an option used to determine futures prices and are correlated to them. Examples of Spot Prices An asset can have different spot and futures prices.
During his two-decade career in Asia and the US, Nathan has consulted in strategy, valuations, corporate finance and financial planning. Options, which come in the form of calls and puts, grant a right, but not an obligation to a buyer. Within the context of financial options, these are typically to purchase an underlying asset.
Similarly, the price for securities may trade in different ranges in the stock market and the futures market. For example, Apple Inc.