The spot price of a commodity, a security or a currency is the price that is quoted for immediate (spot) settlement (payment and delivery). Spot settlement is normally one or two business days from trade date. 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.

Spot prices and future price expectations

Depending on the item being traded, spot prices indicate market expectations of future price movements in different ways. According to the unbiased forward hypothesis, the difference between the spot and forward prices of a perishable commodity should equal the expected price change of the commodity over the period. The spot price for a perishable commodity thus does not reflect future price movements. A simple example: even if you know tomatoes will be expensive in January, you can't buy them and take delivery in July, since they will spoil before you can take advantage of high prices. The July price will reflect tomato supply and demand in July.

For a security or non-perishable commodities (e.g., gold), in contrast, the spot price does account for 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. Any other price would yield an arbitrage opportunity and riskless profit (see rational pricing for the arbitrage mechanics).

See also

• Forward price
• Rational pricing