In futures trading, the spot price refers to the current market price of an underlying asset at the time of the trade execution. It represents the immediate value of the asset without any future contracts or agreements.
Basics of spot price
The spot price serves as a crucial reference point in futures trading, providing traders with real-time information on the prevailing market value of the underlying asset. It forms the basis for pricing futures contracts and is influenced by supply and demand dynamics, market sentiment, and other economic factors.
What is the spot price used for?
In futures trading, the spot price is used as a benchmark for determining the fair value of futures contracts. Traders compare the spot price with the futures price to identify arbitrage opportunities and assess market sentiment. Additionally, the spot price provides valuable information for hedging strategies and risk management in futures markets. Overall, understanding the spot price is essential for making informed trading decisions in futures markets.
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