Spot price

The price at which the physical good changes hands today, set by how much of it exists and how much is being used.

Example

A spot price of 2,000 is a reference: a retail buyer of physical metal pays a premium above it and is paid a discount below it.

Important

No retail transaction in physical metal ever happens at the spot price. Track a holding against the dealer's current bid instead, or you are measuring against a number nobody will pay you.

Related terms

• Commodity — A physical good that is substitutable unit for unit, so it trades at a single global price rather than on the merits of any particular producer.
• Futures contract — An exchange-traded agreement to take or make delivery of a stated quantity of a good on a stated future date, held on a deposit far smaller than the notional amount.
• Cost of carry — What it costs to hold a physical good until a future date: financing on the capital tied up, plus storage and insurance.

Lessons that explain it

• A physical good, and three very different ways to own it — Metal in a vault, a listed product that holds metal, and a dated contract on metal are not three versions of one investment. They differ in minimum size, cost, storage and who owes you what. (9 min)
• The only class here that charges you for holding it — There is no income at all - no coupon, no dividend, no rent. The return is the price change minus the cost of carry, which means a flat price is a loss, and the loss compounds. (10 min)
• The curve, and why a fund can lag the price it tracks — Spot is set by physical supply and demand. Everything dated is set by the cost of carrying the good to that date - and when the curve slopes upward, a fund that holds contracts loses money every time it rolls, even with the price standing perfectly still. (12 min)
• Appraising one exposure: the drivers, the carry and what the product holds — Six checks. Two of them - the curve and what the product actually holds - decide more of a five-year outcome than any view about supply and demand, and both have exact published answers. (13 min)
• No earnings, no dividends - just relative rates, inflation and flows — A currency has no cash flow to value. Its price reflects interest rates, inflation, trade and capital flows and sentiment, and forward prices are set mechanically by interest rate differences. (11 min)

All 578 terms in the Investing glossary