If you’ve ever traded-in your gold, jewelry, or other valuables with us, then you know all our payouts are based on the spot prices of the day. But what exactly is a spot price, and why do they fluctuate? Read on to find out.
What is a spot price? Spot prices are typically used in relation to commodities like wheat, oil, or gold. Investopedia says this is because stocks are always traded at spot. For example, when you buy or sell a stock at its set price, you ultimately exchange that stock for a cash reward. A futures contract price, on the other hand, is determined using the spot price of a particular commodity. Sounds confusing, right? Stay with us!
Although spot prices and futures are directly correlated, they often vary greatly. This is because futures can rise or fall to meet a specific spot price—processes that are known as contango and backwardation, respectively.
Why do spot prices fluctuate? Spot prices never stay the same for very long because they’re determined based on market conditions. Stock options, as well as the actions of buyers and sellers, all contribute to the rollercoaster-like ups and downs of the market.
If you’re still unsure how spot prices affect you, don’t worry. Simply stop in and see us during normal business hours, and we’ll walk you through the entire process.