Spot Price: Definition, Spot Prices vs. Futures Prices, Examples

The spot price is the current price in the marketplace at which a given asset—such as a security, commodity, or currency—can be bought or sold for immediate delivery. 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. 

Basics of Spot Price

Spot prices are most frequently referenced in relation to the price of commodity futures contracts, such as contracts for oil, wheat, or gold. This is because stocks always trade at spot. You buy or sell a stock at the quoted price, and then exchange the stock for cash. Traders can do this cost-effectively with the best online brokers available in the industry.

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. Options, futures contracts, and other derivatives allow buyers and sellers of securities or commodities to lock in a specific price for a future time when they want to deliver or take possession of the underlying asset. Through derivatives, buyers and sellers can partially mitigate the risk posed by constantly fluctuating spot prices.

Futures contracts also provide an important means for producers of agricultural commodities to hedge the value of their crops against price fluctuations. In addition, since the U.S. Securities and Exchange Commission (SEC) approved the first Bitcoin spot ETFs in January 2024, spot price has also become used with much greater frequency in reference to the market price of cryptocurrencies such as Bitcoin and to exchange-traded funds (ETFs) that hold cryptocurrencies.

The Relationship Between Spot Prices and Futures Prices

The difference between spot prices and futures contract prices can be significant. Futures prices can be in what futures investors call “contango” or “backwardation.” Contango is when the futures price of an asset–usually a commodity– is higher than its spot price. Backwardation is when the futures price is lower than the spot price.

Backwardation tends to favor net long investors. That’s because the futures contract price is below the current spot price, and the futures price typically rises over time as the contract gets closer to expiration and the futures price and spot price converge. Likewise, contango favors short sellers because the futures lose value as the contract approaches expiration and converge with the lower spot price.

Futures markets can move from contango to backwardation, or vice versa, and may stay in either state for brief or extended periods. Looking at both spot prices and futures prices is beneficial to futures traders for the following reasons:

• Spot price is the price traders pay for instant delivery of an asset, such as a security or currency. They can be in constant flux.
• Spot prices are used to determine futures prices and are correlated to them.
  

Examples of Spot Prices

An asset can have different spot and futures prices. For example, gold may have a spot price of $1,000, while its futures price may be $1,300. Similarly, the price for securities may trade in different ranges in the stock market and the futures market. For example, Apple Inc. (AAPL) may trade at $200–its spot price–in the stock market, but the strike price on its options may be $150 in the futures market, reflecting pessimistic trader expectations for its future.