In derivatives and financial markets, everything starts with one number: the spot price. Before futures, forwards, or options can be priced, the current market price of the asset must be known. That current price is the spot price.

Spot price questions appear frequently in exams because they form the foundation for understanding arbitrage, cost of carry, and derivative pricing.

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What Spot Price Really Means

The spot price is the current market price at which an asset can be bought or sold for immediate delivery.

“Immediate” does not always mean instant. In practice, delivery usually happens within a short standard settlement period, such as T+1 or T+2, depending on the market.

Still, the key idea remains the same. Spot price reflects today’s value, not a future expectation.

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Spot Price Versus Future Price

This distinction is tested often.

The spot price is the price today.
The future price is the price agreed today for delivery at a later date.

The two are related, but they are not the same. The future price is derived from the spot price after adjusting for time, costs, and income.

Confusing spot price with expected future price is a common exam mistake.

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Why Spot Price Is So Important

The spot price is the starting point for:

• futures and forward pricing
• option valuation
• arbitrage strategies
• hedging decisions

Without a reliable spot price, derivative pricing loses its anchor.

Exams often test whether candidates understand that derivatives are priced off the spot market, not independently of it.

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Spot Price and Arbitrage

Spot price plays a central role in no-arbitrage arguments.

If futures prices move too far away from spot prices after adjusting for cost of carry, arbitrage opportunities arise.

Traders then buy or sell in the spot market and take offsetting positions in the derivatives market. These actions push prices back toward fair value.

This interaction is fundamental to market efficiency.

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Spot Price Across Different Assets

For stocks, the spot price is the current share price in the cash market.

For bonds, the spot price reflects the clean or quoted price, adjusted for settlement conventions.

For commodities, the spot price represents the cash market price for immediate delivery, which may differ by location and quality.

Exams sometimes test these asset-specific interpretations.

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Spot Price and Market Conditions

Spot prices are influenced by real-time supply and demand.

News, earnings announcements, macroeconomic data, and market sentiment can all affect spot prices quickly.

Because spot prices react instantly, they often move before derivatives prices adjust.

Understanding this sequencing helps explain short-term price movements.

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Common Exam Confusions

Students often assume the spot price predicts future prices. It does not.

Another mistake is treating spot price as theoretical. Spot price is observable and market-driven.

Some candidates also confuse spot price with settlement price used for accounting. These are not always the same.

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Final Thought

The spot price represents the present value of an asset in the market today. It anchors all derivative pricing and arbitrage logic. For exam preparation, remember that spot price is about now, not expectation, and that every future or option price starts from this point. Once this is clear, pricing relationships across derivatives become much easier to understand.