Futures Prices and Spot Prices
A futures contract’s price is determined by the price of spot metals. Futures prices also factor in expected variations in supply and demand, the commodity holder’s risk-free return on capital, and storage and transportation costs until the futures contract matures and the trade is complete.
For both the spot and futures prices are quotations for a purchase contract wherein the sellers and buyers settle on the commodity’s value. The transaction time and the commodity delivery schedule are also what makes them differ. Spot metals trading, for example, refers to a deal that will take place immediately; the other, on the other hand, relates to a transaction which will occur afterwards, usually in a few months.
The value of a futures contract for a product is determined by the existing spot price and the price of transportation for the duration between purchase and delivery. The expenditure of holding a commodity, which includes interest, security, and other auxiliary fees, is referred to as the cost of transfer.
Every commodity is priced in two ways: spot and futures. A commodity is a basic form of physical or agrarian item in its natural state, such as precious metals, fuel, grain, or livestock. The valuation of a product at the date of purchase, transaction, and shipment is known as the spot price. In commodities spot contracts, both payment and delivery must be made as soon as possible. Because the purchase takes place “on the spot,” the term “spot price” was coined. The term “futures price” refers to a commodity transaction that will occur at a later time, literally in the future. A commodities futures buyer is obtaining a price in anticipation for a future supply.
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