| Feb 9 2012, 11:00:54 GMT | Sydney: | 21:00 | Tokyo: | 20:00 | Barcelona: | 12:00 | London: | 11:00 | New York: | 06:00 | San Francisco: | 03:00 |
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The spot price is the price quoted for immediate settlement (payment and delivery). Depending on the type of underlying asset, spot prices relate to future price movements for different reasons:
1. Non-perishable commodities = difference reflects future cash flows (interest, earnings)
2. Perishable commodities = difference reflects storage costs and obsolescence
The spot price or spot rate of a commodity, a security or a currency is the price that is quoted for immediate (spot) settlement (payment and delivery). Conceptually, this is similar to the consumer market in which a customer buys an item today and walks out with the goods, with the exception that settlement in the OTC markets is normally one or two business days from trade date to allow time for the bookkeeping.
This is in contrast with the forward price established in a forward contract or futures contract, where contract terms (price) are set now, but delivery and payment will occur at a future date.
Depending on the item being traded, spot prices can indicate market expectations of future price movements in different ways. For a security or non-perishable commodity (e.g., gold), the spot price reflects market expectations of future price movements. In theory, the difference in spot and forward prices should be equal to the finance charges, plus any earnings due to the holder of the security, according to the cost of carry model. For example, on a share the difference in price between the spot and forward is usually accounted for almost entirely by any dividends payable in the period minus the interest payable on the purchase price.
In contrast, a spot price for a perishable commodity does not reflect future price movements since the cost of storage is effectively higher than the expected future price of the commodity. Spot prices can therefore be quite volatile and move independently from forward prices. According to the unbiased forward hypothesis, the difference between these prices will equal the expected price change of the commodity over the period.
