Spot market
MarketsDefinition
The spot market is where financial assets (stocks, commodities, FX, crypto) change hands for immediate delivery at the current “spot” price. Contrast this with the futures market, where a contract locks in a price today for delivery at a later date.
Spot prices reflect real-time supply and demand for an asset right now. For commodities like oil or gold, the spot price is what you’d pay to take physical delivery today. Futures prices embed storage, insurance, financing costs, and expectations about future supply and demand.
The gap between spot and futures is informative. When futures trade above spot (contango), the market expects higher prices or is charging a cost-of-carry. When futures trade below spot (backwardation), there’s an immediate supply shortage or the market expects lower prices.
Spot prices reflect real-time supply and demand for an asset right now. For commodities like oil or gold, the spot price is what you’d pay to take physical delivery today. Futures prices embed storage, insurance, financing costs, and expectations about future supply and demand.
The gap between spot and futures is informative. When futures trade above spot (contango), the market expects higher prices or is charging a cost-of-carry. When futures trade below spot (backwardation), there’s an immediate supply shortage or the market expects lower prices.
Example
Gold spot = $2,000/oz. December futures = $2,015/oz. The $15 gap is roughly a 0.75% annualized cost of carry (storage + insurance + interest).