What are spot prices?

Spot prices (or indexes) represent the price of a commodity in the physical market, where delivery occurs almost immediately, or “on the spot.” Payment typically follows very shortly following the transaction. Spot markets develop because not all consumers or producers may desire to buy or sell 100% of a commodity on a long-term, contractual basis.

What is the spot price of gold?

The spot price of gold refers to the price of one ounce of gold and the spot price of silver refers to the price of one ounce of silver. Gold and silver must be of specific fineness requirements. What Are Futures Prices? The futures prices of a commodity are contracts that designate a price for future delivery of the commodity.

What is spot price in derivatives?

The spot price reflects the true market price of the underlying asset and is the most essential component for determining the price of derivatives. This remains true for all instruments irrespective of the nature of asset viz; shares, currencies or commodities.

Why is the spot market important?

Yet because it's typically impossible to predict with certainty exactly how much of a commodity you'll have to buy or sell, the spot market makes it possible for buyers and sellers to meet unanticipated needs or deal with unexpected surpluses beyond what they expected to have. Moreover, spot prices help determine futures prices.