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

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The spot price is the current market price at which an asset, such as a currency, commodity, stock or cryptocurrency, can be bought or sold for immediate delivery. “Immediate” means the trade is agreed now and settles on the market’s standard short cycle, not at a date the parties choose. A futures or forward price, by contrast, is a price agreed today for delivery at a set date later.

How Spot Price Works

A spot transaction fixes price and quantity now, and ownership changes hands at settlement. “Spot” does not always mean the same second. Each market has its own convention:

• Spot forex: most currency pairs settle two business days after the trade date (T+2). USD/CAD is a common exception that settles next day (T+1).
• US stocks: trades settle one business day after execution (T+1) since May 2024. An ordinary stock trade is a spot trade, even though investors rarely use the term.
• Physical commodities: spot (or “cash”) prices refer to near-term delivery of a specific grade at a specific location, so the spot price of crude oil or wheat depends on where and what is being delivered.
• Cryptocurrencies: the spot price is the price of the coin itself on exchanges. The SEC approved the first US spot Bitcoin exchange-traded products in January 2024. Their share price is distinct from Bitcoin’s spot price, even though the funds hold the coin.

How the Spot Price Is Determined

The spot price is the price at which buyers and sellers are currently willing to trade. In a liquid market every executed trade updates it, so heavily traded assets change price many times a second. Quotes come as a bid (what buyers will pay) and an ask (what sellers will accept). The quoted spot price is often the last trade or the midpoint, while you actually buy at the ask and sell at the bid.

Anything that shifts supply or demand moves the spot price: weather for crops, geopolitical events and war for energy, supply chain disruptions for metals, and interest rates, inflation data and central bank decisions for currencies. Identical assets traded in different places tend toward the same price once exchange rates are accounted for, because traders can buy where the asset is cheaper and sell where it is more expensive. Capital controls, transport costs and market segmentation can keep gaps open.

Spot Price vs. Futures Price

A futures contract fixes a price today for delivery at a later date. That price is not a forecast pulled from nowhere. It starts from the spot price and adds the cost of holding the asset until delivery, known as the cost of carry:

Futures price ≈ Spot price × (1 + financing rate + storage cost − income or convenience yield), scaled to the time until expiration.

Financing is the interest given up by paying for the asset now. Storage and insurance matter for physical goods. Income, such as dividends on a stock index or interest on a bond, reduces the futures price because the holder of the actual asset receives it.

Hypothetical example (commodity): gold trades at $2,000 spot, the one-year financing rate is 5%, and storage and insurance cost 0.5% a year. The fair one-year futures price is about $2,000 × 1.055 = $2,110. If futures traded well above that, a trader could buy spot gold, sell futures and lock in the difference, which pushes the two prices back into line.

Hypothetical example (forex): EUR/USD trades at 1.1000 spot, one-year US dollar interest is 5% and euro interest is 3%. Interest rate parity gives a one-year forward rate of 1.1000 × (1.05 ÷ 1.03) ≈ 1.1214. The currency with the higher interest rate trades at a forward discount, so the forward rate reflects the rate differential rather than a prediction that the euro will rise.

Contango, Backwardation and Basis

Contango describes futures prices above the spot price, the normal state when carrying costs are positive. Backwardation describes futures below spot, which can happen when a commodity is scarce now and holding the physical asset is worth more than its carrying cost.

The gap is measured as the basis, usually defined as spot price minus futures price, so futures above spot means a negative basis. Some markets use the reverse convention.

As expiration nears, the basis shrinks toward zero because a contract about to deliver must be worth roughly what the asset costs today. Convergence can come from the futures price moving, the spot price moving, or both. In backwardation, a long futures position gains if the spot price stays flat and the futures price rises toward it. In contango, a short position benefits from the same convergence. Neither outcome is guaranteed, because the spot price can move against the position, and markets can switch between contango and backwardation.

Why Spot Price Matters for Hedging

Because futures prices track the spot price, futures and other derivatives let producers and buyers lock in a price for a future sale or purchase.

Hypothetical example: a farmer expects to sell 5,000 bushels of corn at harvest. To protect against falling prices, the farmer sells corn futures at $4.50 a bushel with an expiration close to the harvest date. At harvest the spot price has fallen to $4.00 and the futures price has converged near $4.00. The farmer receives $0.50 less per bushel on the crop but gains about $0.50 per bushel on the short futures position, roughly $2,500 in total, which offsets most of the shortfall.

The hedge is rarely perfect. The local spot price the farmer receives may differ from the price the futures contract references, and that difference (basis risk) can change during the hedge. Many futures positions are also closed before expiration or settled in cash.

Spot Price in Options

In options, the spot price is the current price of the underlying asset. Comparing it with the option’s fixed strike price shows whether the option has intrinsic value:

• A call is in the money when the spot price is above the strike.
• A put option is in the money when the spot price is below the strike.

When the spot price falls, a put’s value generally rises and a call’s value falls, all else equal. Delta, one of the option Greeks, measures the expected change in an option’s price for a one-unit move in the spot price. Options on futures use the futures price as the underlying instead, which is why spot and futures charts can show different levels for what looks like the same market.

Spot Rate vs. Forward Rate vs. Future Spot Rate

In fixed income, the spot rate is the yield on a zero-coupon bond for a given maturity, measured from today. A forward rate is the rate for a future period implied by today’s spot rates.

Hypothetical example: the one-year spot rate is 4% and the two-year spot rate is 5%. The implied one-year rate starting one year from now satisfies (1.05)² = 1.04 × (1 + f), so f = 1.1025 ÷ 1.04 − 1 ≈ 6.01%.

The future spot rate is the actual one-year rate that will prevail a year from now, and nobody knows it today. The forward rate locks in a rate. It is not a forecast, and the realized future spot rate can land above or below it. The same applies to currencies and commodities: the futures or forward price is today’s contract price, while the future spot price is whatever the market price turns out to be on that date.

Limitations of Spot Price

• It is a snapshot. A spot price says what an asset trades for now, not what it is worth later or whether it is fairly valued.
• It is not one number. Bid, ask, last trade and midpoint can differ, especially in thin markets or outside main trading hours.
• It is not the futures price. Treating a futures quote as the spot price, or the reverse, can misstate entry levels, hedge ratios and profit calculations by the full amount of the basis.

FAQs

The Bottom Line

Spot prices matter to anyone trading, hedging or valuing currencies, commodities, stocks, crypto or options. A spot quote shows what an asset trades for now, while futures and forward prices reflect carrying costs and rate differences rather than forecasts. Keeping the two apart, and knowing whether a quote is the bid, ask or midpoint, prevents errors in entry levels, hedge ratios and profit calculations.