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Other settlement dates are also possible. Standard settlement dates are calculated from the spot date. For example, a one-month foreign exchange forward settles one month after the spot date. I.e., if today is 1 February, the spot date is 3 February and the one-month date is 3 March (assuming these
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A simple example: even if you know tomatoes are cheap in July and will be expensive in
January, you cannot buy them in July and take delivery in January, since they will spoil before you can take advantage of January's high prices. The July price will reflect tomato supply and demand in July. The
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does not allow this arbitrage โ the cost of storage is effectively higher than the expected future price of the commodity. As a result, spot prices will reflect current supply and demand, not future price movements. Spot prices can therefore be quite volatile and move independently from forward
213:(e.g. silver), the spot price reflects market expectations of future price movements. In theory, the difference in spot and forward prices should be equal to the finance charges, plus any earnings due to the holder of the security, according to the
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In finance, the spot date of a transaction is the normal settlement day when the transaction is done today. This kind of transaction is referred to as a spot transaction or simply spot.
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forward price for
January will reflect the market's expectations of supply and demand in January. July tomatoes are effectively a different commodity from January tomatoes (contrast
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prices. According to the unbiased forward hypothesis, the difference between these prices will equal the expected price change of the commodity over the period.
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Depending on the item being traded, spot prices can indicate market expectations of future price movements in different ways. For a security or non-perishable
360:, swap curve, cash curve or coupon curve). Spot rates cannot be directly observed, prices can: spot rates are thus estimated from these prices via the
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dates are all business days). For a trade with two dates, such as a foreign exchange swap, the first date is usually taken as the spot date.
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which occur at that date. An alternate statement of this: the rate of effective annual growth that equates the
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displays these rates over various maturities. Each security class will have its own curve (with the resultant
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payable in the period minus the interest payable on the purchase price. Any other cost price would yield an
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traded. A transaction which has settlement after the spot date is called a forward or a forward contract.
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the difference in price between the spot and forward is usually accounted for almost entirely by any
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where contract terms are agreed now but delivery and payment will occur at a future date.
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The spot date may be different for different types of financial transactions. In the
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30:See also:
18:Spot price
379:Commodity
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302:with the
251:spot date
245:Spot date
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396:See also
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368:Currency
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281:Examples
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