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13 de julho de 2023

Spot Price Definition, Example, Spot Prices vs Futures Prices

It’s important to remember, though, that just because an asset’s futures price is high now doesn’t mean it will remain...

Spot Price Definition, Example, Spot Prices vs Futures Prices

It's important to remember, though, that just because an asset's futures price is high now doesn't mean it will remain so in the future. The price of futures is determined by the myriad of economic variables we've already discussed. When there are more buyers, the bid quantity would also inflate, leading to more demand for underlying security and thus pushing up the spot price. Similarly, more sellers lining up to sell would lead to an accumulation of underlying security available to be sold. The increased availability of underlying security will outstrip the demand leading to lowering of prices. The spot price is the current quote for immediate purchase, payment, and delivery of a particular commodity.

People look to Precious Metals, such as Silver, to protect themselves from the devaluation of the U.S. dollar or the unpredictability of the stock market. Silver is available for investment in several different forms, including physical Silver bullion or paper Silver. In contrast, the futures price is delineated in a futures contract—an agreement between two parties to buy/sell the commodity at a predetermined price on a delivery date in the future. A commodity's spot price is the current cost of that particular commodity, for current purchase, payment, and delivery. In commodity spot contracts, payment is required immediately, as is delivery.

In simple terms, the spot price is the market’s current price for gold right now, and the most important price that you should pay attention to if you’re looking to sell. Futures contracts with longer times to maturity normally entail greater storage costs than contracts with nearby expiration dates. The spot price of gold — or any commodity for that matter — represents the price at which the commodity may be exchanged and delivered upon now. This is in contrast to gold or commodity futures contracts, which specify a price for the commodity for a future delivery date. Silver is a commodity that trades virtually 24 hours per day across many exchanges such as New York, Chicago, London, Zurich and Hong Kong. The most important exchange, however, when it comes to determining the spot silver price is COMEX.

  1. Futures prices and contracts are nothing more than well-informed guesses about an asset's future value.
  2. You probably won’t hear the term “spot price” very often when you invest in stocks because stocks always trade at spot price.
  3. The difference between the two prices is the bid-ask spread, and the tighter the spread, the more liquid the product.
  4. Hundreds of ounces of “on-paper” Silver are traded on the COMEX for every single ounce of Physical Silver that is ultimately delivered in the real world.

If your contract is short and the asset in question won't be stored for an extended period, you may not have to worry about storage fees. If you're wondering this, you must find out the answer before putting any money into an investment of any kind. This is because you will only be able to make the most profitable investment decisions if you know the current spot price of gold or silver. Today’s Silver spot price is a composite of worldwide futures markets, primarily the COMEX, representing the underlying real-world Precious Metal value. A common factor mentioned when discussing the price of Silver and supply and demand is the Gold to Silver Ratio.

Example of a Spot Market

The difference between spot prices and futures contract prices can be significant. Backwardation is when futures prices rise to meet the higher spot price. Backwardation tends to favor net long positions since futures prices will rise to meet the spot price as the contract get closer to expiry. Contango favors short positions, as the futures lose value as the contract approaches expiry and converges with the lower spot price. Online dealers may offer buyers some advantages over local coin shops.

Both the spot price and the futures price are quotes for a purchase contract—the agreed-upon cost of the commodity by the two parties, the buyer and the seller. What makes them different is the timing of the transaction and the delivery date of the commodity. One applies to a deal that's going to be executed immediately; the other, to a deal that's going to happen down the road—usually, a few months hence. Many commodities have active spot markets, where physical spot commodities are bought and sold in real-time for cash. Foreign exchange (FX) also has spot currencies markets where the underlying currencies are physically exchanged following the settlement date. Delivery usually occurs within 2 days after execution as it generally takes 2 days to transfer funds between bank accounts.

In addition, the amount of silver is fixed as one regular silver futures contract equates to 5000 ounces of silver. Exchanges and markets all over the world can take the current spot silver price in USD and convert the price in USD to local currency. The terms contango or backwardation describe the relationship between the spot price and futures price. You may not realize that spot prices are frequently compared to futures prices.

Spot price and futures price

The spot price for silver is influenced by a number of factors but at the most fundamental level is purely a function of supply and demand. COMEX, a division of the New York Stock Exchange and the London commodities market are the preeminent markets whose prices for silver are used as a basis for trading, buying and selling all over the world. Silver futures contracts are an agreement for a buyer to purchase a fixed amount of silver from a seller, top five cryptocurrencies at a fixed price, at a specific time in the future. A simple example would be a buyer agreeing to purchase 5,000 troy ounces of silver, at $20/troy ounce, two months from present. If during those two months, the price of silver increases $2, the buyer would profit $10,000, as they have now purchased $110,000 worth of silver for only $100,000 cash. The spot price provides potential buyers and sellers with a clear current market price for an asset.

Spot Price vs. Future Price

Examining the history of Silver’s price per ounce is an excellent indication of its actual value. Knowing the forms of Silver and understanding the current Silver spot price is crucial to learning market trends and protecting your investments. A commodity's futures price is based on its current spot price, plus the cost of carry during the interim before delivery. Cost of carry refers to the price of storage of the commodity, which includes interest and insurance as well as other incidental expenses.

Silver is traded virtually 24 hours a day through many exchanges such as Chicago, Hong Kong, London, New York and Zurich. The Silver spot price is then calculated using the near-term, or the nearest contract with the most volume, futures contract prices. The spot price of Silver is the price in the Precious Metals market that a raw ounce of Silver can be bought and sold for immediate delivery. The spot prices are typically listed in USD but can convert to local currencies. To stay current on market events and news, reading market reports and analyses from experts in the field can help an investor always stay apprised of the Precious Metals landscape. 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.

That said, legal tender silver coins are generally priced based on their silver content. Although silver coins may be legal tender, they are not typically used in day to day transactions as typically their precious metal content value is far greater than their legal tender face value. In the USA, certain states have sales tax on silver bullion products. Depending on which state you are located in, and where you purchase your silver, you may be liable to pay sales or use tax on the purchase. For more information on individual states, reference our local buying guide.

ETFs are paper assets, and although they may be backed by physical gold bullion, they trade based on different factors and are priced differently. Bid prices represent the current maximum offer to buy in the market, and Ask prices represent the current minimum offer to sell in the market. If you are a buyer, you will pay the Ask price, and if you are a seller, you will receive the Bid price. The difference between the two prices is the bid-ask spread, and the tighter the spread, the more liquid the product.

In other words, it is the price at which the sellers and buyers value an asset right now. It's the value sellers can immediately get for an asset and the price a buyer would pay for prompt delivery. Spot prices are constantly moving, so asset buyers and sellers, especially of commodities, often want to lock into the future price of an asset to protect against a sudden and sharp price movement. These commodities traders will buy or sell futures contracts on the desired asset to lock in its price or speculate on its direction. Notably, backwardation leans towards a net-long position because prices aim to raise the value to reach their spot price when the contract grows close to expiring. Opposite of this would be contango, which favors shorter positions because the futures decline in their value when the contract grows close to expiring.