What does spot price mean?
Spot price is a term used to describe the current market price of a commodity, such as a raw material, energy or precious metal, for immediate delivery. In other words, it is the price at which the commodity can be bought or sold right now, and not in the future. Spot price is an important concept in many markets such as oil, gold and foreign exchange markets.
Spot price definition
The spot price is determined on the market based on supply and demand. It reflects the current value of the commodity and can fluctuate rapidly as market conditions change. The spot price is especially important for those who trade commodities in the short term, such as day traders and speculators.
Meaning of spot price
The spot price has several significant effects:
- Price indicator: The spot price acts as an indicator of the commodity’s current market value. It helps investors and traders make decisions about buying and selling timing.
- Basis for derivatives: Many derivatives, such as futures and options, are based on the spot price. The prices of these derivatives are derived from the spot price, and they offer the opportunity to hedge against price fluctuations or speculate on future price changes.
- Financial planning: Companies that use raw materials in their production can use the spot price in their financial planning and budgeting. For example, airlines closely monitor the spot price of fuel.
Difference between spot price and futures price
Spot price and futures price are two different concepts, although they are closely related. The spot price is the current market price of the commodity, while the futures price is the price at which the commodity can be bought or sold at an agreed time in the future. The futures price can be higher or lower than the spot price depending on market expectations and conditions.
Examples of the spot price
The spot price is used in many different markets. Here are some examples:
- Oil: The spot price of oil determines how much crude oil costs when delivered immediately. This price may vary daily due to global events such as geopolitical tensions or natural disasters.
- Gold: The spot price of gold is the price at which gold can be bought or sold immediately. The price of gold can vary depending on economic news, inflation expectations and exchange rates.
- Currency: In the foreign exchange market, the spot price means the current exchange rate of the currency. For example, the spot price between the euro and the dollar tells you how many dollars are needed to buy one euro.
More information
If you want to learn more about the spot price and its effects in different markets, you can check out the following sources:
