Question:What's the difference between the futures and spot price?
- Difference between the futures and spot price
- How the prices are affected
- Trading Period and Expiration Date
Difference between the futures and spot price
The prices of futures, though running synchronously with the prices for spot, but rarely completely repeat them.
The fact is that the spot price is the price of the product, existing in the market at the moment (on the spot market delivery of goods is immediate) and the futures price is the estimated price of the product over a period of time ranging from a few days to a couple of years.
How the prices are affected
Factors influencing the formation of these prices are different.
If the spot price is influenced by the current demand and supply, the futures price depends not so much on the fluctuations of the price of the product, but on the expectations of the speculators about the prospects of this product in the nearest future.
Trading Period and Expiration Date
Since a few futures contracts with different expiration dates are traded on the exchange, the price of futures is usually built in ascending or descending order.
The longer the period before the futures trading expires is, the greater is the deviation from the spot price.
Conversely, the closer the futures expiry date is to the current date, the closer is the price to the spot, since upon expiration of futures trading period its price automatically becomes a spot price.