<p>The <strong>spot price</strong> is the current market price at which a commodity, currency, or financial instrument can be bought or sold for immediate delivery. In commodities markets, it reflects the value of the physical asset — such as crude oil, gold, or wheat — that would change hands today rather than at a future date. Spot prices are quoted continuously during trading hours and serve as the baseline for derivatives contracts, forward agreements, and many risk‑management strategies.</p>

<h2>How It Works</h2>
<p>When a buyer and seller agree on a spot transaction, they commit to exchange the asset and payment almost instantly, usually within two business days (T+2 settlement) for most commodities. The price is determined by the interplay of supply and demand on the exchange or over‑the‑counter market where the asset trades. Quotes display a bid (the highest price a buyer will pay) and an ask (the lowest price a seller will accept); the spot price is typically the midpoint or the last traded price.</p>
<p>Market participants monitor spot prices through real‑time feeds, and they fluctuate in response to news, weather reports, geopolitical events, inventory data, and macro‑economic indicators. Because settlement is immediate, the spot price captures the most up‑to‑date valuation of the underlying asset, without the time‑value adjustments embedded in forward or futures prices.</p>

<h2>Why It Matters</h2>
<p>The spot price is essential for several reasons. First, it provides the reference point for pricing derivative contracts; futures and options are often valued relative to the prevailing spot level. Second, producers and consumers use spot prices to hedge exposure — locking in costs or revenues by entering into forward contracts that reference the spot benchmark. Third, investors tracking commodity markets rely on spot movements to gauge market sentiment and make allocation decisions.</p>
<p>For example, a coffee farmer expecting to harvest 10 tonnes in three months might sell a forward contract today at a price based on the current spot price of coffee. If the spot price rises before harvest, the farmer is protected against a potential price drop; if it falls, the farmer benefits from the higher forward price locked in earlier. This illustrates how the spot price underpins both speculative trading and practical risk management in the commodities sector.</p>